Do you know the value of a conversion? It may seem like a basic question, but there are many factors to consider.
For example, ecommerce advertisers may determine the actual value of a conversion as the purchase price of an item. If a person buys a $100 widget from your site, then the value is $100. But in the real world we know there are other expenses incurred including overhead, shipping, etc.
If you are participating in online advertising, a way to calculate a value of a conversion is to look at Return on Ad Spend (ROAS). ROAS is simply dollars sold divided by dollars spent. It means how many dollars you are getting back for every dollar you spend. Going back to our widget example, if an advertiser spent $20 for advertising on that widget, the ROAS would be 5. 100/20 = 5. For every dollar you spend, you are getting $5.
Return on Investment (ROI) is another way to calculate a conversion’s value. The formula for ROI is (Revenue — Spend) divided by spend. This is a way to determine what percentage of spend you are getting back as profit. If you spent $20 on advertising a widget that sold for $100, to calculate ROI take ($100-$20)/20 * 100 = 400%. ROI should be as high above 100% as possible. Also, remember to take the lifetime value of a customer into account when examining the value of a conversion.
Regardless of how you measure your success, the important thing is that you are taking steps to track and improve results. Making sound decisions on what efforts are working and not working will surely help to boost your bottom line.
What are your advertising goals? What is your return on investment? How much are you willing to pay per conversion? All of these questions seem pretty straightforward; however you might be surprised how many advertisers can’t answer them.
Defining your goals should be a priority in any form of advertising: online or offline. While traditional advertising has always had more barriers to tracking performance, online advertising offers ways to evaluate performance that some businesses might not be using.
Define what your conversion points are. Do you want your site visitors to sign up for a newsletter, become a member, or make a purchase? Next, decide how much you are willing to pay for that conversion. You may have many conversion points on your site and each one may be worth more or less than others.
What do you want to track? With the transparency of online advertising, you have the ability to track just about any metric you want. You can track how much revenue was brought in by a particular search engine, such as Google or Yahoo. You can even determine which keywords are generating conversions.
Once your goals are clearly defined, you can then begin to determine how effective your advertising is. Are you making a profit? What is your return on investment?
Investopedia defines ROI as “a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments”. You can easily calculate your ROI by using the following formula.
For example, if you earned $18,000 from your Google paid campaigns and you spent $4,000, your return on investment would be 350%.
If you are able to determine if your goals are being met, you can easily begin to optimize the performance of your efforts. If you are not seeing a return, you can also determine what efforts you should not continue or work to improve.
In today’s era of internet savviness, it is almost unheard of to operate a business without having a website. Consumers are apt to feel as though your company is more credible when you have a professional looking website to reference and/or direct them to. That being said, having a website is only half the battle. There are a few mission critical items to consider if your intention is to maintain a long-term presence online:
Search Engine Marketing (SEM). You now need to market your site and make it visible in the search engines. A Cost Per Click (CPC) campaign will help to promote your site in the various engines such as: Google, Yahoo, MSN, ASK, etc.
Search Engine Optimization (SEO). In conjunction with SEM, simultaneously incorporating SEO into the mix will help to supplement the cost of your paid efforts. Remember, all organic results equate to FREE traffic and who doesn’t want FREE traffic?
Return on Investment (ROI). Now that your site is visible and searchers are finding you through your SEM/SEO efforts, you need to determine how they are finding you and which specific keywords and search engines are giving you the best ROI. This is where a critical piece of the puzzle comes in place = Analytics. There are a number of analytic tools available today to measure online marketing performance. These tools will afford you the ability to make very educated decisions with your initiatives. Most tools will offer the functionality to ensure you are spending your advertising dollars wisely. Just a few variables an analytics tool can provide you with: bounce rate, conversion rate, shopping cart abandonment rate, percentage of new visitors versus returning, etc. Paying for clicks that do not convert into sales (or generate valuable leads) is a huge waste of money; especially given the state of the economy today.
Feel free to check out our Analytics Blog, which provides helpful tips and techniques to better understand web analytics: https://www.morevisibility.com/analyticsblog/index.php
A professional looking website + SEM +SEO + Analytics = $$$$$.