What’s a Conversion Worth?

How to calculate the dollar value of anyone doing anything on your website

If your business sells something and your business has a website, there’s a very good chance that the website was designed to drive people to purchase what you’re selling. Each time someone takes an action that further drives them towards a purchase, that’s called a “conversion.” Conversions are one of the clearest signs your marketing strategy is generating value for your company. However, how can you identify how much a particular conversion is worth, especially if it’s not the transaction itself?

Breaking It Down

Fortunately, calculating the dollar value for a conversion is relatively straightforward – you just have to ask yourself two questions:

1. How much is the purchase worth?

Of course, we’re going to need the dollar amount of the purchase you’re ultimately wanting people to make. If you anticipate recurring purchases (like a SaaS subscription model, for example), then you will want to multiply that number by the amount of times you think they will recur.

This is called the “lifetime value” of your customer (or “LTV”). Since it’s unwise to assume that your customers will remain your customers forever, you need to figure out how long an average account will remain your customer. To do that, look at “churn”, which is the percentage of your subscribers who cancel their accounts over a period of time.

For example, if 4% of your subscribers cancel their accounts each month, then the average account is likely to stick around for 25 months (1/.04). If you charge $80/mo, then over the span of 25 months your customer will have paid you $2,000. That is your LTV – the value you can expect to get over time once an initial purchase has been made.

2. What’s the likelihood of this leading to a purchase?

The other question to take into account helps identify the odds of someone actually purchasing your offering, based on the action you’re measuring. For example, let’s say the conversion you’re calculating for involves getting people to sign up for a free trial.

If 20% of the people who enter your trial become paying customers, then the purchase likelihood for the “start a trial” conversion is – you guessed it – 20%. Of course, if the conversion you’re measuring is the transaction itself, then the purchase likelihood is 100% – you can’t lose people on the way to purchase if your action is the purchase!


Putting It All Together

With these two questions answered, we can boil everything down to a single golden formula:

Item Price * Estimated Purchases * Likelihood to Buy = Conversion Value

Here are examples for the four potential scenarios, based on the two questions above:

A conversion that leads up to a one-time transaction

Let’s say you’re selling an ebook for $40 and tweet out a link that drives people to download a sample chapter. If you find that 60% of the people who download the sample chapter wind up buying the ebook, then that action is worth $24 a pop:

Item price = $40
Purchases = 1
Likelihood = .6 (60%)

$40 * 1 * .6 = $24

If your email blast got 200 people to download the chapter, you could attribute it to generating $4800 of value for your company.

A conversion that is itself a one-time transaction

This scenario is the easiest to calculate, by far. Let’s say you’re selling the same ebook but instead of offering a free chapter, you’re asking people to buy it straight-up.

Item price = $40
Purchases = 1
Likelihood = 1 (100%)

$40 * 1 * 1 = $40

The value of the conversion is simply the price of the ebook! If you tweet out a link that gets 20 people to purchase a $40 ebook, you can mark that tweet down as having generated $800 for you.

A conversion that starts off recurring transactions

Ok, now we’re getting a bit more serious. Instead of an ebook, let’s say your company sells an accounting app for $100/mo, and has a 2% churn rate. The 2% churn rate provides a 50-month average subscription length, so the average account would come with an LCV of $5000:

Item price = $100
Purchases = 50
Likelihood = 1 (100%)

$100 * 50 * 1 = $5000

If you had a drip email course that generated 100 new paying customers, then that campaign would be worth $500,000 — not bad!

A conversion that leads up to recurring transactions

Lastly, what if you had a marketing effort that drove people to take an action that led to a purchase but wasn’t the purchase itself? Let’s say you sent out an email blast to get people to sign up for a free demo for your accounting app, and 20% of the people who get demos become paying customers:

Item price = $100
Purchases = 50
Likelihood = .2 (20%)

$100 * 50 * .2 = $1000

Since only 1 out of 5 demo recipients become paying customers, getting someone to sign up for one is only 1/5 the value of getting someone to start a paid subscription. However, your email blast could still be very, very valuable — even if you only got 10 people to start a trial, you’d still be able to chalk the blast up to making you a cool $10,000!

So there you have it — a quick way to identify the effectiveness of a marketing campaign by tying its results back to real-world dollars.

There were a lot of subtleties that weren’t covered in this overview, like that this works WAY better if you’re selling something vs. an ad-based or “freemium” revenue model, or the fact that LCV should also factor in costs like customer support, etc., but this should nonetheless give you a big head start in your journey towards accounting for your marketing and design decisions.

In fact, we even built a tool to make the calculation a breeze – enjoy!

Calculate Your Own Conversion Values Now