Digital Marketing and Cost to conversion

At webcalibrate digital marketing agency we believe that promoting your products and services is much more effective if you use multiple marketing channels. This is effective for traditional marketing like radio adverts, ads in newspapers, tv ads, and also on digital channels. Digital channels might include social media, youtube, email, SMS, and other digital ads like pay-per-click.

This is a no-brainer the more your audience is bombarded by how great your product or service is the more trust they will put and confidence when purchasing. Trust is a perceived belief and is hard to measure, yet there are ways to work out if a marketing campaign is indeed returning its effort.  

One important thing to do before you start burning all your marketing budget and contacting the various promotion companies is to think retrospectively about how you will measure the return on your investment. The first thing to do is to understand what the costs are, both direct and hidden for your marketing campaign. What is the durability of the campaign and how do you plan to measure the return also known as the goal.

Marketing Costs

To understand your marketing costs you need to factor in the initial cost for the advert, and also the hidden costs. These hidden costs might be related to design and management time for example to create the advert and any ongoing and recurring fees. Once you manage to convert the total marketing effort into an actual cost that will be your first step toward understanding the effectiveness of your marketing campaign.  

Conversion Goals

Next you will need a way to measure the campaign effectiveness. This can be tricky depending on the type of service or product you are selling. For example, if you are selling online your ultimate goal is the payment transaction and with tools like google analytics this can be easily tracked, but if you are running a consultancy business not all leads will turn into an immediate sale. In this type of scenario, a goal could be a contact from a lead like clicking on the call or submitting the contact form.

Actual Return

Using the conversion goals, you have a clear indication of what your campaign efforts are resulting in. This should be converted to actual profits, if you are selling a product the profits should be clear. In cases where you are selling a complex service like business to business or consultancy then you can use an average based on the value of the lead or the effort required to get such lead using other channels. For example, if your business to business lead is likely to secure 200K deal but converting such a lead will take much more effort you can assume that that lead is potentially worth a percentage of the business generated. Another way to calculate the return on such value is to compare it to costs from other channels. For example, setting up a stand in an international fair generated x number of leads and costs y. Thus, I can assume that a similar lead interaction would otherwise cost me Y divided by X.

Other things that need to be factored in are bonus costs and infrastructure. If you are giving a bonus to make your campaign more effective this needs to be taken into consideration and subtracted from your actual return.

Duration of the campaign

For us to measure the effective return on investment you will need a start and end date for your campaign. While some marketing channels like pay-per-click ads tend to give an immediate return other marketing channels like search engine optimisation and radio adverts are normally effective over a period of time. For such channels, we would suggest that you average your conversion goals over a longer period of time and then use that average as a monthly goal example 6 month conversion total divided by 6.

Cost to conversion

Once you have the actual cost and conversion return the cost per conversion is easy to work out this is the profit over costs. For example, running a Facebook marketing campaign capped at €300 per month plus agency fee and designer over 6 months. In total I paid €2700 and directly from this campaign I sold 60 products at a profit of 50 euros per sale.  

Understanding your Cost to conversion

Once you do this exercise you know your cost to conversion. If your cost to conversion is positive and high you need to do it more. If your facebook adverts are returning enough profit we would suggest spending more on such ads because it is likely you will increase your return. If you are experiencing low or even negative returns, don’t panic. Here you have learned a valuable lesson that will work to your advantage. The actions to consider are

  1. Should we focus on other channels that might result in a lower cost
  2. Should tune our marketing campaign to be more effective
  3. Are we underselling our product or service at the right price