What is conversion value?

In paid advertising, a conversion is when someone completes a desired action, like making a purchase or filling out a form. But not all conversions are equal. This is where conversion value comes in. Conversion value is a number that tells you the monetary worth of each conversion to your business. It helps you understand how much revenue or profit you're getting from your ad campaigns, rather than just knowing how many actions were completed.

Think of it this way: one customer might buy a small item, while another buys several expensive items. Both are "conversions," but the second customer brings in more money. Conversion value helps you see this difference. By tracking conversion value, you can better understand which ads, keywords, or campaigns are truly bringing in the most profitable results, allowing you to make smarter decisions about where to spend your marketing budget.

It's a crucial metric for any business running paid ads, especially those looking to maximize their return on investment (ROI) or return on ad spend (ROAS). Instead of simply aiming for more conversions, you start aiming for more valuable conversions.

Why conversion value matters

Understanding conversion value is like having a superpower for your ad campaigns. It shifts your focus from just "getting clicks" or "getting conversions" to "getting profitable results." Here's why it's so important:

• Optimized bidding strategies: Ad platforms like Google Ads or Meta Ads can use conversion value to automatically adjust bids. If one keyword or audience consistently brings in high-value conversions, the system can bid more aggressively to capture those valuable actions, leading to better overall performance.
• Improved budget allocation: When you know which campaigns, ad groups, or even individual ads generate the most conversion value, you can reallocate your budget. You can move funds from underperforming areas to those that are proven to deliver higher returns.
• Accurate return on ad spend (ROAS): ROAS is calculated by dividing your total conversion value by your total ad spend. Without accurate conversion values, your ROAS calculation would be based on conversion counts, which can be misleading. A high ROAS means your ads are generating significant revenue relative to their cost.
• Better decision-making: It helps you identify your most profitable products, services, or lead types. You might find that while one product has many conversions, another product, with fewer conversions, actually generates more total revenue due to its higher price point. This insight guides product development, pricing, and overall business strategy.

How to assign and track conversion value

Assigning conversion value depends on your business model. There are two main types of values you can assign:

Static conversion value

This is a fixed value you assign to every conversion of a specific type. It's often used for actions where the immediate monetary return isn't variable or easily tracked, like a lead form submission or a newsletter signup. For example, if you know that, on average, a new email subscriber eventually spends $10 with your business over their lifetime, you might assign a static conversion value of $10 to each newsletter signup.

Dynamic conversion value

Dynamic values change with each conversion. This is common for e-commerce businesses where the value of a purchase varies based on the items bought. When a customer buys products totaling $150, the conversion value recorded is $150. If another customer buys items totaling $50, the conversion value is $50. Ad platforms can receive this information directly from your website's tracking code (e.g., through the data layer of an e-commerce platform).

To track conversion value, you typically set it up within your ad platform's conversion tracking settings. For dynamic values, this involves passing the actual transaction amount from your website to the ad platform using specific code snippets or integrations (like Google Tag Manager or direct API integrations).

Best practices for optimizing conversion value

Once you're tracking conversion value, the goal is to improve it. Here are some best practices:

• Segment your data: Don't just look at overall conversion value. Break it down by campaign, ad group, keyword, audience, device, and even time of day. This helps you pinpoint exactly where your highest and lowest value conversions are coming from.
• Optimize for high-value conversions: If you identify certain keywords or audiences that consistently drive higher conversion values, focus more of your efforts and budget on them. You might even create separate campaigns specifically targeting these high-value segments.
• Refine your bidding strategies: Use value-based bidding strategies in your ad platforms (e.g., "Maximize conversion value" or "Target ROAS"). These strategies are designed to help you get the most conversion value for your budget, rather than just the most conversions.
• Improve landing page experience: A better user experience on your landing pages can lead to higher average order values or more qualified leads. Ensure your landing pages are relevant, fast, and easy to navigate.
• A/B test offers and pricing: Experiment with different product bundles, pricing tiers, or lead magnets. Sometimes a slight change can significantly increase the average value of each conversion.

By actively monitoring and optimizing for conversion value, your marketing team can move beyond basic conversion tracking to truly understand and improve the profitability of your paid advertising efforts. It's about working smarter, not just harder, to get the most out of every dollar you spend.