Compute the value of your lead gen conversions – Pt 2 of 2/
June 1, 2006
Earlier this week, I explained how to calculate a very simple value for the kinds of conversion events that happen on lead generation websites (e-mail registrations. Demo downloads.) I also wrote about calculating the value of an event when someone might convert more than once before actually buying (i.e. they might register for the email as well as download the software.)
Today, let’s talk about how to weight the value of those events. All the data here are fake, so that I can make them do exactly what I want.
The trvial example: Let’s start with a website that sells basement waterproofing. In order to show how awesome their service is, they let you download a canned presentation, but you have to choose a presentation that is compatible with the Mac or Windows. No one does both conversion events, so we should look at them each in isolation. Let’s say a thousand people downloaded the presentation. 200 were Mac presentations and 800 were Windows presentations. Of the ten people who ultimately purchased (at $3000 a pop — waterproofing is expensive!) three watched the Mac presentation and seven downloaded the same presentation for Windows. Now, instead of lumping all the conversions together like I did in Part I, let’s calculate them separately:
Value of a Mac presentation= (3 purchases*$3000)/200 Mac downloads=$45
Value of a Windows presentation= (7 purchases*$3000)/800 Windows downloads= $26
Now you can put a separate value for each conversion event into your web analytics, and convert your return on investment for your marketing dollars that lead to those events.
A harder example. Many companies that don’t do e-commerce have multiple conversion events, and visitors will often convert more than once, especially if the ultimate purchase is a high-ticket or “high consideration” product/service. So now let’s consider a trade organization that has two conversion opportunities on their website: you can register for the e-newsletter or sign up for a webinar. Once again, 1000 people have converted, but this time, let’s assume that 100 signed up for just the e-mail newsletter, 300 signed up for just the webinar, and 600 did both. Ultimately, 43 people actually joined the organization, which costs $2000. Of those 43 people, one had originally signed up for just the e-mail, 12 had signed up for just the webinar, and 30 had signed up for both.
So what are the two different kinds of conversions worth?
Value of an email registration: (1 purchase*$2000)/100 email registrations= $20
Value of a webinar signup: (12 purchases*$2000)/300 webinar signups= $80
I know, you are dying to know how the people who sign up for both conversion events affects the value of each event. When I designed the dataset, I was very careful to make sure that the probabilities lined up perfectly so that we could completely ignore it. Notice that there is only one email converter who also becomes a customer (1/100 email converters – 1%), there are 12 webinar converters who also become customers (12/300 webinar converters = 4%) and there are 30 “both” converters who also become customers (30/600=5%). That means when you add the chances of an email converter becoming a customer (1%) to the chances of a webinar converter becoming a customer (4%), you get exactly the chances of a “both” converter becoming a customer (5%). It looks like just numbers and statistics, but it means that there is no synergy between the events — they don’t have a 1+1=3 effect. This means that we don’t have to pull apart the “both” category and start assigning value to the two different events.
Don’t quite believe me? Let’s do it another way to check ourselves. Since there were 100 email only converts, 300 webinar only converts, and 600 “both”, that means we ultimately had 700 (100+600) email converts, and 900 (300+600) webinar converts. 700*$20 per email convert = $14K, and 900*$80 per webinar convert = $72K, for a total of $86K. And how much revenue did we bring in? 43 customers at $2000 each, which equals…. $86K.