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So how do you calculate your conversion in that case? This formula works for many businesses – such as ecommerce stores or service companies with a simple customer journey:
The basicsYou can also use this simple calculator:
If you’d like to take this a step further, insert the lifetime value of a customer in the revenue field.
That’s the meat of it. But if you’d like to learn more, let’s explore the following topics:
The conversion value is the average revenue from a visit that ends with a monetary transaction.
If you’re an ecommerce business, the conversion value is straightforward. You know your profit margin and should track the conversion rate. If 1,000 people spend £50,000 in your store, your average revenue is £50. Easy peasy.
However, service businesses are a bit more tricky. Their website conversion rarely has direct monetary value – it’s more often a lead, usually not even sales-qualified at this stage.
Instead, connect the KPIs of two worlds: the easily accessible conversions on your website, and the lead conversion rate and the average transaction value from your sales team.
If your company is perfectly accurate with tracking all four metrics, you’re in a great spot. But chances are the values aren’t accurate, they’re all over the place, or sometimes you might not even know them! The more variables we introduce, the less accurate it gets.
So why should you bother?
Conversion value is an intuitive metric but we rarely realise how impactful it is beyond its obvious importance for profit margins. It directly affects the profitability of your digital marketing and website optimisation projects.
People often overlook that conversion value is fluid. It can change without adjusting the price of your products or services.
The simplest example would be seasonal shopping, but there’s much more. Changing your internal processes or even a new traffic source to your website will impact the metric. In many cases, you will need to predict your conversion value. You need to use your past data to estimate how it will change before Christmas or for Black Friday.
Running a Google Ads campaign with your usual CPC for seasonal campaigns will quickly leave you behind your competition. If your conversion value is projected to increase by 50% for a week or two, your competitors are definitely turning their CPC up a notch for that period.
And if they’re not, it’s an opportunity to become the #1 advertiser for your keywords while maintaining, or even increasing the ROI.
Depending on your circumstances, you’ll use a different date range to get your average transaction value. You’re looking for a period that is the most representative of your needs. Generally, the longer the better. If your sales volume, internal processes and pricing were stable throughout the last year, using that entire period will yield the most accurate results.
In some cases, your transaction value might vary by as much as 300%, or even more. Bespoke services like website design or video production are hard to judge. The calculations will be even harder – but not impossible.
We recommend using the longest date range possible while keeping our above tips in mind. You’ll also want to look at the distribution of final prices. Your median order value might be more accurate if there’s a huge disproportion between your cheapest and most expensive services.
Last but not least, try splitting it based on the scope. Choose the most popular service and see how it pans out. Taking NerdCow as an example, it wouldn’t be wise to calculate the average transaction value by mixing together projects for a single landing page and a full website build. Pick the service that is your bread and butter, or the most relevant for the marketing campaign you’re trying to optimise.
We’ve mentioned ads and CPC. The conversion value is part of a formula to ensure you’re not wasting your budget on Google Ads. To help you with your digital ad campaigns, we’ve created another calculator for PPC profitability with a description of each value in the formula.
Calculate your Google Ads profitabilityEven though conversion value is a crucial metric for your website and digital advertising, your calculations also depend on offline metrics. Effective digital marketing heavily relies on several aspects:
Neglecting one of them will have a negative impact on your entire sales funnel. From not tracking the visits to poor website performance, missing one piece of the puzzle will render your digital marketing unprofitable. This highlights the need for a bespoke website and regular conversion rate optimisation to stay on top of crucial metrics and user feedback.
Is your actual conversion value higher or lower than what you expected? Let me know in the comments.
Discover the value of optimising your conversions compared to building more landing pages or designing a new website.
Originally published Apr 21, 2020 1:46:02 PM, updated May 8 2024.
We expose the secrets of B2B websites to inspire your team.
Bimonthly website breakdowns for marketers and business owners.
