Setting Cost Per Conversion Goals & Benchmarks
When you’re thinking of starting up a Google Ads account, it’s important to identify the goals you’re looking to achieve. This becomes even more important when looking at metrics like Cost Per Conversion or your Return on Investment (ROI).
When we bring on a new client, the first thing we do is ask them for their Cost Per Conversion goal. Sometimes the client is already aware of theirs and can easily give us a number. Other times, the client may be unsure of thinking about their goals in this way, and may need more guidance in working them out.
What is a Cost Per Conversion?
A Cost Per Conversion (also known as Cost Per Acquisition and other such names) is essentially the amount of money you spend to achieve a conversion. For example, if you spend $200 on advertising and receive 2 conversions, your Cost Per Conversion is $100. It’s a pretty simple metric to calculate, but it gets more complicated when you mix it with a client’s Lead Conversion Rate & Job Profit.
A lead conversion rate is the number of leads a client is able to turn into jobs or work for a profit. So, if we get 10 conversions or leads to the client, and they are only able to turn 5 of them into profitable work, then their lead conversion rate is 50%.
Job profit is pretty much exactly how it reads. If you’re advertising for a job that gets you $500 from your customer, and your expenses for that job cost $300, then you’ve made a $200 profit. Naturally, this $200 can then be put back into advertising costs.
What do we do with these metrics?
These numbers are a vital step in determining whether or not Google Ads is going to be an effective form of marketing for your business. To calculate your cost per conversion benchmark, the mathematical equation looks a bit like this:
Profit From Job / Lead Conversion Rate = Cost Per Conversion Benchmark
$200 / 50% = $100
Both the profit from a job and lead conversion metrics are incredibly important to figure out what you should be aiming for as a cost per conversion. Notice above how it says “benchmark”. This is the “break-even point” for your business. This means that you’re investing the entire $200 you just made back into advertising, and you’re neither losing money nor gaining money. The benchmark is really only in place to determine the point where you begin to lose money. The lower you are compared to your benchmark, the more profit you make.
Let’s go back to our figures – say you run Google Ads for a few weeks, and your Cost Per Conversion starts to creep above your $100 benchmark. This is a big warning sign that Google Ads perhaps now costs you money instead of making it. This might change as the account progresses. Maybe your lead conversion rate increases which would allow your cost per conversion to increase a little. Or, maybe you now have a bigger profit margin on your jobs. In any case, it’s an opportunity to review.
Google Ads is an ever-changing advertising platform and can easily turn into a money drain if you don’t have the proper foundations in place. Take the time to review your figures, set goals and benchmarks, and you’ll easily be able to stay on top of your spending.
If you want to know more, or are looking for help with your marketing goals, send us a message!
Written by Lachlan Ward