Cost per conversion is the amount spent to convert a lead into a sale. The main purpose of calculating the cost per conversion is to make sure a business is not spending more on acquiring its customers than they are worth. To calculate this number, the cost of a marketing campaign is divided by the total number of sales that resulted from the campaign. This number can then be compared with the average customer value to determine if adjustments to the marketing campaign should be made. If the average customer value is lower than the cost per conversion, then the company is losing money and must make adjustments immediately.
Comparing the cost per conversion calculation with the average customer value requires some careful considerations. What may initially seem like a costly marketing campaign may actually be very profitable when looking at the lifetime value of its customers instead of the average value of their initial purchases. For example, if a business finds that its customers spend an average of $15 US Dollars (USD) the first month, but return and spend an average of $200 USD throughout the year, then it may be understating its customer value, making the marketing campaign appear too costly.
Online advertising through pay-per-click (PPC) campaigns frequently use the cost per conversion as a metric tool. It allows businesses to compare results of different running campaigns to make sure their cost per conversion figures are not higher than they should be. For example, if a business is running a PPC campaign that shows the cost per conversion is $8 USD, but the business's overall cost per conversion is $7 USD, then it should consider adjusting its online campaign. Another way it can be used is to compare several running marketing campaigns to see which ones are more efficient.
If the cost per conversion is needed for an online marketing campaign for services or items purchased offline, then determining the cost per conversion can become a little more difficult. Instead of using the sale as a way of monitoring the conversion, another metric must be identified, and then the likelihood of someone reaching this metric should be calculated. For instance, if a business offers consulting services and finds that 75 percent of those who contact them through the contact form convert into paying customers, then it will use the number of form submissions to calculate its costs per conversions. The business could take 75 percent of the total number of submissions and use this as its number of conversions, for example.
