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Conversion cost is one of the most commonly used metrics for evaluating the effectiveness of digital campaigns. In a nutshell, it tells you how much the budget cost to generate one conversion (sale, lead). In other words, when you divide spending by the number of conversions achieved, you get the cost per conversion. In most cases, advertisers will be interested in lowering the cost per conversion, but not always. In some cases, you can afford to increase the cost of conversion if you can increase scale that way. Going even further, you can accept a high cost per conversion for a new customer, hoping to generate an adequate Life Value (LTV) in the long run.
Tied to cost of conversion is also another metric, namely conversion rate. I must admit that, in my opinion, there are definitely better metrics. Why? About that in a moment later in the article.
What cost of conversion should I aim for?
There are many answers to this question. First and foremost, one that generates a positive return on investment over the long term. The final cost of conversion will be influenced by such elements as:
- market trends
- attractiveness of the offer
- price offer
- the structure of the landing page
- fast site loading speed
- bidding strategy
- complexity of the conversion process
- quantity of data acquired
- selection of media
- type of campaign
And the above are just some of the elements that affect the cost of conversion. Even after a cursory analysis, you can see that the cost of conversion cannot be analyzed in isolation from time, campaign structure or the type of data acquired. So it will be more valuable for you to monitor this ratio over time, but in the same campaign and under similar market conditions.
What are the alternatives for cost of conversion?
In addition to monitoring cost per conversion, you can add metrics such as:
to your analytics dashboard.
- ROAS, or return on advertising spend
- CAC, i.e., cost of customer acquisition – and here we are talking about the rate per person/customer, not per one-time lead
- LTV, or customer lifetime value – is the averaged value that one customer brings over the analyzed, long period
- Profit from advertising campaigns, i.e. the difference between the revenue generated and the expenditure on the campaign
You can, for example, in a project generate a higher profit and a lower ROAS at the same time. Let’s see with an example:
Let’s assume that your campaign spending is PLN 10,000 per month and generates PLN 80,000 in revenue. So ROAS will be 800% and profit will be PLN 70,000 (for simplicity we do not count margins here).
You increase your campaign spending to PLN 15,000 generating PLN 110,000. ROAS is now 733% and profit is 95,000 PLN. So you have increased the profit, but decreased the ROAS. Which will be better for your business? Profit, of course, which shows that one metric cannot be the key to evaluating the effectiveness of a given campaign.
How can you lower the cost of conversion in Google Ads?
Now it’s time for some suggestions on how you can affect lowering the cost of conversion in Google Ads. These are one-size-fits-all ideas that may work on some accounts, while in other cases they won’t be usable.
- Campaign budget management
In most cases, the higher the campaign budget and scale, the higher the cost per conversion will increase. This principle may not apply to very small budgets, but from a certain threshold it works great. Google Ads will automatically draw your attention to campaigns where there is a budget limitation by displaying a message. It is these campaigns that you should pay special attention to.
If you manage your rates at the CPC level, you can lower your rates leading to a decrease in the cost of traffic for the same campaign. The cost of generated traffic will drop, thus probably the cost of conversions. CPA rates work similarly – too high of a rate or no cap (a strategy to maximize conversions or conversion value) leads to overpaying in auctions. You can also pay attention to the lost share of impressions, which will allow you to estimate how many percent of impressions are limited by rates or daily budget.
In summary, consider in which campaigns you are exhausting your daily budget and make changes to reduce the cost of buying traffic.
2. Optimize Quality Score
The Quality Score in Google Ads is a key component that affects the cost of ads. The higher it is, the less you will pay for the same ad visibility. To improve your quality score, you need to learn how to influence all of its components:
- The expected click-through rate, which estimates what kind of CTR you will get with the current campaign structure for each keyword. You can influence it by building better tailored ads, communicating differentiators, generating interest through extensions, etc.
- Landing page quality: here, the main goal is to make sure your landing pages are trustworthy and useful to the people who click your ad, plus they are fast, mobile-friendly and engaging.
- Advertising relevance, which means the level of match between keywords and related ads and landing pages.
3. Sealing the structure of Google Ads campaigns
A good Google Ads account structure is one that is easy to manage, clear and simple to infer. You should organize keywords, ad groups and eventually campaigns in such a way that they form concise thematic groups. This will boost quality results later on. Single-topic ad groups will ensure a close match between keywords, ads and landing pages, improving relevance and thus also the quality score.
Automatic bidding strategies are set at the campaign level, so with proper allocation, you are sure to provide Google Ads with consistent data to optimize bidding strategies. You can allocate budgets more easily when campaigns are properly organized.
When keywords are bundled into thematic ad groups, you can more easily detect conversion cost patterns and allocate budget according to keyword effectiveness in the ad groups in question. One strategy that comes close to thematic excellence is the so-called SKAG (single keyword ad group), a working model where each ad group has only one keyword.
4. Use portfolio bidding
If you don’t have a clear breakdown of conversion cost goals per campaign, you can use one common goal for several or even all campaigns. To do this, you can use a rate-setting strategy using portfolio bidding. In this strategy, you set the CPA level and choose which campaigns to target. Importantly, the budget with such bidding can move seamlessly between campaigns. Google Ads will therefore select those campaigns that better meet your CPA target.
Portfolio bidding works great if:
- you have many campaigns on your account
- it doesn’t matter to you whether the conversion is generated by campaign A or B
- you get enough conversions to populate the algorithm with data (it should be a minimum of 100 conversions per month from selected campaigns)
5. Test rate adjustments
If you are still using standalone or enhanced CPC rate determination, you can manually adjust rates based on the data:
- Device: desktop computer, cell phone, tablet, etc.
- Demographic data: age, gender, location, etc.
- Recipients: detailed demographics custom segments, etc.
- Networks: search, advertising or partner network.
- Time of day: hourly
If a particular time of day, network, location or device is not achieving conversion rates, exclude those segments or adjust rates accordingly to pay less.
The question is, in this time of the reign of smart bidding and CPA, does this still make sense? In my opinion, it does and there are several such cases. Especially for small businesses with a very narrow bid structure, where basically every click from an ad counts and full control of rates. Most local clients with small territorial coverage will also benefit from this setup.
6. Clear keywords
To detect keyword effectiveness patterns well, you need to have a clear list of them. Part of the task you should do regularly to take care of the “hygiene” of your account.
- Take care of the most effective keywords: have these phrases highlighted, take care to provide a daily budget with enough margin, watch the share of displays so as not to lose potential
- Develop a list of exclusionary keywords. Use the search terms report and look for keywords that are not related to your offer, do not generate any conversions in the long term, have negative overtones, etc.
- Continually look for new phrases and experiment. In running a campaign, it’s easy to get stuck on the structure you originally built. If you keep doing the same thing over and over again, why expect better results? Always have one campaign to test, search more broadly than the direct intent, it’s worth it.
7. Arrange conversion tracking
The last idea for lowering the cost of a potential customer in Google Ads is full analytics. What do I mean by this? A few things related to analytics implementation:
- Check if and what data gaps do you see? Compare the data from your CRM system with the data in your online campaigns. There will always be differences, but you need to know why they occur and how big they are. This will affect the calculation of your ROI.
- Check the data.
- Set up offline conversion tracking. Synchronizing your CRM with Google Ads will help you gain a more complete view of which keywords and targeting criteria generate the most profitable conversions. You’ll get to the level of analyzing customer value rather than online conversions.
- Always try to set conversion values, even if you’re not running e-commerce. This will allow you to use customer value-based rate strategies.
- Take care to implement Google Ads augmented conversions to respond to data tracking limitations.
- Be prepared for the new age of analytics, or Google Analytics 4, learn how to create standard Google Analytics 4 reports now.
CEO and managing partner at Up&More. He is responsible for the development of the agency and coordinates the work of the SEM/SEO and paid social departments. He oversees the introduction of new products and advertising tools in the company and the automation of processes.