What are conversion costs?

Conversion costs is the amount spent on the transfer of management for sale. The main purpose of calculating conversion costs is to ensure that the company does not recall more for obtaining its customers than they are of value. To calculate this issue, the costs of the marketing campaign are divided by the total number of sales resulting from the campaign. This number can then be compared to the average customer value to determine whether the marketing campaign should be modified. If the average value of the customer is lower than the conversion costs, the company loses money and must immediately make adjustments.

Comparing the cost of calculating conversion with the average customer value requires some careful considerations. In fact, what may seem like a costly marketing campaign may be very profitable when looking at the lifelong value of their customers instead of the average value of their initial purchases. For example, if the company finds that its customers will spend an average of $ 15 (USD) the first meSetting, but returning and spending an average of $ 200 throughout the year, then it may be the underestimating value of its customer, so the marketing campaign seems too expensive.

Online advertising through Pay-Per-Click (PPC) campaigns often use conversion costs as a metric tool. It allows businesses to compare the results of different operating campaigns to ensure that their transfer costs are not higher than they should be. For example, if an enterprise operates a PPC campaign that shows the cost of conversion of $ 8, but the total cost of the conversion is $ 7, then it should consider adjusting its online campaign. Another way to use is to compare several running marketing campaigns and find out which ones are more efficient.

If the online marketing campaign is required for conversations or items purchased offline and then setting the cost of conversion may be about themwhat more difficult. Instead of using sales as a method of conversion monitoring, another metric must be identified and then the likelihood of someone will achieve this metric. For example, if the company offers consulting services and finds that 75 percent of those who contact them via the contact form convert them to paying customers, then use the number of form submissions to calculate their conversion costs. Business could take 75 percent of the total number of submissions and use it as a number of conversions.