Conversion costs

Staying on top of your finances is crucial, especially when assessing the ROI for various business initiatives. One of the most important metrics companies track is conversion costs.

The majority comes from advertising costs which directly result in higher conversion rates. Understanding conversion costs is important because it can help you assess the effectiveness of your ad campaigns and determine the success of your marketing strategy.

Calculation of conversion costs

Your conversion costs always depend on the strategy you use to achieve your business goals. The general conversion cost calculation formula is as follows:

conversion costs = total cost of generating traffic

If you divide the Total cost of generating traffic by the total number of conversions, you get the cost per conversion (CPC). The total cost of generating traffic includes your ad costs.

cost per conversion (CPC) = total cost of generating traffic/total number of conversions

For instance, if you use PPC (pay per click) campaigns, you will be able to track and control ad costs. This is possible thanks to the score quality metric, which stands for the relevance of your PPC ads and keywords.

As with many other metrics, this model depends on the industry and the final product. For each business model, the conversion funnel looks different. Therefore, it is recommended to take these calculations with a grain of salt.

What do conversion costs include?

When you consider all the conversions that take place on your website, the conversion costs can include various factors. To calculate your expenses precisely , you need to have an overview of your paid marketing initiative.

Generally speaking, every time you have to pay to get a visitor to convert, those costs add to the total value of your conversion costs. These can vary, but they represent your paid marketing effort. For instance, if you only use paid Google ads the budget you’ve spent on generating traffic is your total cost. The case is different if you use multiple paid marketing channels. If you segment this traffic and divide it by the total number of conversions, you will get your cost per conversion.

Here are all possible costs that can be included in conversion costs:

All of these expenses fall into the category of conversion costs. Tracking them is vital for your success as it will help you reach a marketers’ ultimate goal of creating the most effective and the most cost-efficient ad strategy.

What is not included in conversion costs?

You should never forget that paid ads are not the only source of your website traffic. A large portion of your website traffic is organic, meaning that you don’t have to pay directly to bring the potential customer to your site.

Yes, you might have paid for an SEO specialist, expert blog writer, and seasoned social media marketer. However, these expenses don’t fall under the conversion costs. The following is not included in the conversion cost:

• Redesign of your website for a better user experience
• SEO for your content and website
• Regular blog posts
• Guest posts
• Social media profiles
• Forum posts

These strategies can increase your website traffic, but since it is organic, the conversion costs definition does not apply.

Optimization of conversion costs

There is a range of options available to control conversion costs, such as setting the maximum price you are willing to pay for targeted keywords or conversion rate optimization. In paid advertising, you can also optimize conversion costs, reduce them, and still get the most out of your campaign.

The easiest way to reduce conversion costs is to improve your quality score. It’s a numeric value of the quality of your ad, keyword, and landing page.

• Optimize your content marketing and choose more relevant keywords – the more your ad is relevant to the targeted keywords, the better your quality score will be.
• Make improvements on your landing page – use A/B testing to choose the best-performing landing page for your target audience. A/B testing CTAs, value propositions, and headlines can provide you with valuable insights.
• Improve your click-through-rates – improve your ad copy, refine your CTAs.