As much as we’d like advertising to be a simply “money in, money out machine”, it’s not. I’d like to think of PPC (Pay Per Click) Ads as a linear path of invest money in, and get money out.
It doesn’t work that way.
That’s why it’s crucial to think about your conversion goals, give a monetary value to those goals, and measure costs per conversion.
In this quick article, we’ll give you all the basics of conversions and advertising costs.
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Setting Up Conversions on PPC Ads
The best part of PPC ads, is the ability to track conversions. But first, you’ll need to decide what conversions matter most to you.
- Define your conversion goals: Be clear on what a “conversion” means for your campaign. Is it a purchase, a landing page view, a newsletter signup, or a phone call?
- Utilize conversion tracking tools: Most PPC platforms offer built-in conversion tracking tools. These tools use website tags or code snippets to track visitor actions.
- Set up conversion tracking for different actions: If you have multiple conversion goals, track them separately. This allows you to analyze the effectiveness of your ads for each desired outcome.
The conversion funnel isn’t a straight shot to a sale. Conversions happen at various levels. Someone might see your ad (awareness), then download an informative guide (micro-conversion), before eventually purchasing (macro-conversion).
The path can be non-linear too.
A customer might visit your site directly (bypassing an ad), then sign up for your newsletter (micro-conversion) later after seeing a social media post. By tracking these different conversions throughout the funnel, you gain a clearer picture of how potential customers interact with your brand and ultimately convert.
Determining the Value of Each Conversion
Not all conversions are created equal. Assigning a value to each conversion helps you understand the true return on your advertising investment. Here’s how to determine conversion value:
- For sales: The value is straightforward – it’s the average sale amount.
- For leads: Estimate the value of a converted lead based on their potential to become a paying customer. Consider average customer lifetime value.
- For other actions: Assign a value based on the action’s contribution to your sales funnel. For example, a newsletter signup might be worth $10, considering the average conversion rate of subscribers to customers.
Over time, your ad data will accumulate and you can refine these values to better match the real worth to your business.
If you want to scale your conversions faster, learning how to run AB tests is essential.
ROI, Measuring Costs per Conversion
This is where the rubber meets the road – your Return on Investment, or in ads, Return On Ad Spend (ROAS). Two metrics are crucial to track:
- Conversion value per cost estimates your return on investment. This is the ultimate number to determine an ad’s impact on revenue. To calculate conversion value per cost, follow the below formula.
Conversion value per cost = Conv. value / cost - Interaction rates. There are a combination of brand growth metrics that help you know if your brand is growing and being received by the target audience. Using the interaction rate is a good early indicator that your target audience notices and interacts with your content. This suggests brand awareness is growing, and your message resonates with them.
If your ad budget is small, you might not see conversions for weeks. However, you can measure interaction rates. This will tell you the quality of the ads and the accuracy of the audience targeting.
IMPORTANT INSIGHT
Often, a high interaction rate but low conversion value per cost indicates your audience resonates with your message, but something in the sales process is amiss (i.e. landing pages, pricing, the specific offer, etc).
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