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Lucy Griffiths

How to Calculate Conversion Rates

21st Nov 2008 Analytics, Paid Search 2 minutes to read

To make the most of your Internet marketing strategy, you will undoubtedly be using some form of pay per click management.  If you aren’t yet using it, pay per click is a form of online advertising that involves paying only for the number of clicks that your advert receives from web users.  The most popular PPC system is Google AdWords, although there are other options such as Yahoo! Search Marketing and Microsoft adCenter.  But simply gaining clicks on your advert is not enough; these clicks need to be converted into a desired outcome.

To anyone using PPC, tracking conversions is essential.  A conversion in this sense happens when a user clicks a PPC advert, and that click leads directly to one of your required results.  This may include buying, signing up, leaving their details or simply reading something.

Tracking these conversions is of vital importance to your business because it allows you to make better decisions about how to use your ads. It allows you to adjust and experiment with different headlines and keywords and check that ads lead to optimum conversions.  It is a simple way to check your ROI (Return on Investment), make budgeting alterations and make future choices based on this data.

The tracking of a conversion is carried out by a cookie, which is automatically placed on the user’s computer when they click your Ad.  In the case of Google, if the user continues from your PPC ad to one of your conversion pages, the cookie on the user’s computer web browser sends a notification back to Google. When this occurs, Google tracks this as a successful conversion.

There are several tools that Google uses to analyse your conversion rates.  However, in order to set these up, a small piece of code needs to be placed on your conversion pages so that Google can monitor the conversion.  Once Google’s conversion tracking software is running, it will deliver conversion reports for you automatically.

Calculating your conversion rates involves some basic mathematics.  If I sell Blue Widgets, I put up a Google AdWords Ad Group and see that I have 500 sales from 5000 unique visits.

Ad Group              Keywords        Unique Visitors    Sales

Blue Widgets1       Blue Widgets          5000            500

The calculation for conversion is simply SALES divided by VISITORS multiplied by 100 to get the rate as a percentage.  If you had more than one Ad Group/Set of Keyword, you could compare their performance.

Using this calculation, you can see a direct relationship between your PPC spending and the income it generates by comparing the cost of the PPC ad clicks against profit. If you choose a PPC rate of £0.25p per click and each sale creates £250 profit, you can see that your total PPC cost is £1250, whereas your gross profit is £125,000.

Tracking your conversions is imperative, but it’s what you do with that information that counts.  It’s the action that you take as a result of your conversion rate analysis that will enable you to be successful.  Of course, your conversions also rely on the content of your website being valuable and relevant to the visitor.

Hopefully this article will prove useful but if you need help with your Pay per Click management, please get in touch with the team at Koozai!

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