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How to Calculate Conversion Value for Service Industries

#Marketing

21st April 2020

You can’t know how profitable your website is without using conversion value. It’s one of the key metrics for your business. Inaccurate estimates will lead to a wasted marketing budget. But if you’re in a service industry, the calculation is more complicated than using the average order value.

To get an accurate value, you need to measure KPIs on your site and in your sales department. In short, your website must be a bridge between your marketing and sales teams.

Many businesses in the services industry face the challenge of a lack of data about conversion value in their analytics tools. Their typical website session doesn’t end in a purchase. Instead, the user is likely contacting the sales team to get a bespoke quote in a traditional fashion or through a third-party digital solution. Moreover, the prospect will visit your website multiple times before they finally convert.

How to calculate your conversion value

In most cases, it’s hard or even impossible to integrate these offsite metrics into your website tools. Instead, you have to connect the KPIs of both worlds: the easily accessible conversion rate on your website, as well as the lead conversion rate and the average transaction value from your sales team.

The only thing you need to do to get the value is to multiply the three values. Sounds simple, but it’s not the calculation that causes issues. It’s more about why you need to know the value in the context of your website and digital campaigns, which is often underestimated.

To give you one quick example: if 5% of your website visitors contact your sales reps and half of them become clients worth an average of £1,000, your actual conversion value is £15. It might seem very little at first, but it’s enough to successfully advertise in most industries.

But if calculating the value itself isn’t an issue, then what is?

Why do you need to keep monitoring your conversion value

Conversion value is a very intuitive metric but we often don’t 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.

One thing about it that is often overlooked is that conversion value is changing. And it can change without changing 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 have an impact on 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 expected 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.

Find out what’s your optimal Cost Per Click

Now that you know your average conversion value and its importance, you can use the data to maximise your ROI. Use our free tool to calculate the optimal and break-even CPC. Discover if you can afford to turn your CPC up a notch to be more competitive, or if you should cut down on your Google Ads spend for it to become profitable.

Calculate your CPC

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 for 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, video production, etc. are extremely hard to evaluate. In that case, 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 Nerd Cow 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 towards the marketing campaign you’re trying to optimise.

Make your website work for your marketing and sales teams

Even though conversion value a crucial metric for your website and digital advertising, your calculations also depend on the offline metrics. Effective digital marketing heavily relies on several aspects:

  • a proper Analytics setup
  • frequent website optimisation
  • seamless workflows for marketing and sales
  • an understanding of key metrics and what affects them

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.

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