Average Cost per Conversion
Regardless of your business model, conversion is one of the most important visitor activities you need to track. By calculating the average cost per conversion you can ensure that you’re not paying too much to acquire visitors.
The general calculation for average cost per conversion is similar to average cost per visitor and average cost per visit:
Sum of Acquisition Marketing Costs / Conversions = Average Cost per Conversion
Sophisticated marketers may want to segment this KPI for individual conversion events; to do this you need to have a pretty good system for tracking marketing costs so that they may be associated with the intended act of conversion. For example, if your site is designed to generate leads but visitors can also sign up for a newsletter, you may want to assign the lion’s share of marketing costs to the former and a small fraction to the latter—only the marketing you do to grow your newsletter subscription base. Doing so will inevitably produce a better-looking KPI for your newsletter subscription conversion event but this makes sense as long as the latter event is ancillary to your marketing goals.
Similar to average cost per visitor it does make sense to segment average cost per conversion by marketing channel to help identify strategies that are ineffective from a cost perspective.
Because this KPI is dollar-based it and critical to the success of most businesses it is unlikely you’ll need to change much in the presentation. It is worthwhile, if you break down your cost by conversion event, to both provide a global view (all marketing costs divided by all conversion events) for reference and also clearly identify the conversion event for micro-events.
If you’re paying more for conversions than the conversions are worth then clearly something has gone wrong. For most companies this is not the case and the expectation is that even nominal ongoing savings in conversion costs can add up. By constantly re-examining your marketing acquisition efforts and cutting waste, your cost per conversion can be dramatically improved.
Any time average cost per conversion increases it is advised to immediately examine your marketing efforts to see what has changed. The most common case is that some expensive program has recently been launched and is failing to drive an appropriate number of conversion events. In this case you usually don’t want to immediately cease the marketing activity in question but do want to pay close attention to said effort, watching for any improvement.