When dealing with paid advertising, there are a lot of terms you need to know. One of those is cost per conversion (not to be confused with cost per click), also called cost per action or cost per result. It’s important to have a good understanding of what conversions are and what they mean for your business, as well as how to calculate cost per conversion. We’ll break down the concept of conversions first, then walk you through how to calculate cost per conversion for your business.
Step One: Define Your Conversions
A conversion happens when someone visits your website from an ad and takes the action you want them to take. So the first step in calculating your cost per conversion is to define what a conversion is for your business. If your main goal is to bring traffic to your site, a conversion could simply be someone clicking on a blog article. If you run an online store, a conversion could be someone making a purchase. Maybe you have your phone number listed on your website and your idea of a conversion is a customer clicking that phone number on a mobile device and calling your business. Having multiple conversions is okay, too! For most businesses, except those selling online, a conversion is defined as the lead generation (i.e. phone call, contact form, email, etc.).
Why Care About Conversion Rates?
Conversion rates are one of the easiest ways to judge how an ad (or type of ad) is performing. If you run a display campaign and end up with an exceptionally low conversion rate, you might consider trying a different approach to your advertising to bring in more conversions. On the flip side, if you run a campaign and end up with a high conversion rate, it’s easy to see that that campaign is working well for you and your business, so you may want to consider running more of that type of campaign in the future or increasing your budget.
How to Calculate Cost Per Conversion
Cost per conversion is essentially what it costs your business to acquire a customer. Once you define your conversions, calculating cost per conversion is actually pretty easy. Simply take the cost of running the campaign and divide it by the number of conversions. For example, let’s say that your conversion is when someone makes a purchase from your website. If you spent $50 on running your campaign and 5 purchases were made, your cost per conversion would be $10. $50 divided by 5 conversions is $10 per conversion.
It is a common misconception that cost per conversion is the cost of the actual conversion. It is the total cost of the clicks or impressions that it took to achieve that result.
What is a Good Cost Per Conversion?