What is a conversion worth?

When working with clients, I often ask - "what is a conversion worth to you?" The response I get is typically "We don't know." You are probably asking yourself why this is important.

First, let's start by defining a conversion. A conversion is an important action that a user takes on your website, such as downloading a pdf, filling out a contact form or clicking on a phone number or email address to get in touch with a business. These are very important metrics to track. Let's use a "Request for Quote" form as an example. To begin measuring how much a conversion is worth, you need to know the following variables:

How many Request for Quote forms are filled out over the course of a year?
How many of those Request for Quote forms end up as sales?
What was the average dollar amount for each of those sales?
Total Sales from Request a Quote?
How much profit from the average sale from Request a Quote?
Total profit from sales from Request a Quote?

**The monetary value of the website and profit in our example below is fictitious and just used for learning purposes**

Let's say 150 users fill out a request for more information about website design services over the course of a year. Of those 150 forms, only 30 of them lead to a purchase of website design services. We know that on average, a website costs around $150,000 to build and we net around $20,000 profit for each website. We have all the initial variables we need.

How many Request for Quote forms are filled out over the course of a year? 150
How many of those Request for Quote forms end up as sales? 30
What was the average dollar amount for each of those sales? $150,000
Total Sales from Request a Quote: $4,500,000 (30*150,000)
How much profit from the average sale? $20,000
Total profit from sales: $600,000 (30*$20,000)

By applying this formula, we know that on average a Request for Quote is worth about $30,000 to the company ($4,500,000/150).

So, how much should we spend on advertising? To figure this out, we need to know how much profit we are making off the average $20,000 we have listed above. This turns out to be $4,000 average profit from a quote request submission ($600,000/150). From a marketing perspective, we now know that we can spend no more than $4,000 on advertising for Request a Quote form submissions. Any spend over $4,000 will render a monetary loss on the sale. Keep in mind, this formula does not consider the lifetime value of a customer who may return in 3-5 years with a new website project or other instances involving additional services.

Now that we know how much our Request for Quote form is worth to the company and how much we can spend to acquire a new customer, we can begin to figure out which marketing channels are driving the most business.

You can apply this same concept to e-commerce stores, phone calls, contact forms, newsletter signups and more. We recommend that you figure out how much each of these conversion actions are worth to your business.

Now that we have uncovered the importance of knowing what these numbers indicate, let me ask the question again - "What is a conversion worth to your business?"

If you don't know the answer, we can help! Contact us today to let us help you figure out how much a conversion is worth to your business.