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Conversion value when conversion is a sale

Visitor ✭ ✭ ✭
# 1
Visitor ✭ ✭ ✭

I understand the Google help doc when a conversion is a lead. 

It makes since to multiply the conversion rate because not all conversions(leads) become sales.

 

However, in the ecommerce solution where the conversion is a sale, wouldn't the value per conversion (short term) just be avg value of a sale times profit margin?

 

Multiplying by conversion rate would then be average value of a click not a conversion, correct?

 

The help document seems to apply that their formula would hold true for leads and sales.

So I feel like I must be overlooking something obvious.

 

2 Expert replyverified_user

Re: Conversion value when conversion is a sale

Top Contributor
# 2
Top Contributor
Hi Julie,
Conversion rate is the number of conversions divided by click. Conversion value doesn't come into play when calculating conversion rate. Obviously, this metric is only valuable to a point.

When calculating conversion value for an ecommerce sale, most people use the EXACT figure of the sale value or the profit/margin value. This makes revenue per click reports etc. a lot more useful.

There's no "average sum" calculated for conversion rates.

Let me know if you want me to go into more detail.

Re: Conversion value when conversion is a sale

Google Employee
# 3
Google Employee

Hi Julie. This is an amazing question. Really had to open my thinking cap on this one. Smiley Tongue

 

1. The value per conversion = value of the sale * profit margin. 

  • Average deal revenue: $3,000
  • Profit margin: 45%
  • $3,000 * .45 = $1,350 per conversion
  • $1,350 * .10 (conversion rate) =  $135 per click

I think that the not so obvious part about this particular article is that it is doing average revenue for your entire business meaning, in this example, they have added all of the product revenue and averaged it together. Depending on your organizations's products or services that may not make sense. 

 

In reality, you may want to do this by individual product or average for a group of products in order to get a more accurate picture of your cost per click would be. 

 

I assume that you ask this in order to find how much a click is worth and create a baseline for what your bids should be and what your ROI. Enhanced CPC  may help you in trying to keep your click rates down and help you to keep click costs low. Conversion Optimizer may help you in trying to achieve more conversions.