Goal values and conversion values: what are they and how do I calculate them?
If you’ve spent time setting up ad campaigns for your company or web analytics on your website, you’ve probably been prompted to enter a conversion value for your ad campaigns or goal values. But what exactly is a goal value (or conversion value), and how do you calculate it? This article will define and explain the benefits of goal and conversion values, and provide step-by-step instructions for calculating the value for common goals, including sales, leads, SaaS or publication subscriptions, CTA clicks, and email list subscriptions.
What are goal and conversion values?
Goal and conversion values both refer to the same thing: the dollar amount that a completed conversion or goal is worth to your organization. Put another way, these values answer the question “how much money does our organization make when a goal is completed by a user?” For the rest of this article, we’ll be referring to this value as “goal value,” but keep in mind that “goal value” and “conversion value” are interchangeable terms. Let’s break down a couple of examples to show this in practice.
Let’s say you run an e-commerce website that sells shirts. In this case, a goal completion would be a sale, and the goal value would be the price of the item sold. If you sold a $15 shirt, your conversion value would be $15.
Here’s another common example: you’re a marketing agency and the objective of your site is to generate leads. In this case, a goal completion would be a contact form submission and the goal value is the price of a lead—if you know a lead is worth $100 for your company, your goal value is $100. If you’re wondering how to get this $100 value, we’ll expand on that below.
Why is goal value important?
The most obvious benefit of assigning a goal value is that you know how much money you’re making from your online activities. You can then use this knowledge to better inform your marketing and business strategy. After all, if you’re not sure how effective your marketing activities are, how do you determine what to do next?
You can use the value of a goal completion for better ad campaigns and web pages:
- Advertising platforms like Facebook Ads and Google Ads use conversion value to optimize ad placements, allowing you to prioritize the delivery of ads that drive sales for high-value products and services.
- Defining a goal value in Google Analytics enables you to use goal value as a metric across various default and custom reports, so you can determine which traffic sources, demographics, or types of users generate the most value.
The most important takeaway: goal values help you make much better marketing (and business) decisions. Let’s take a look at the steps it takes to calculate them.
How do I calculate goal values?
Depending on your goals, the method for calculating their value differs. Here’s how to calculate values for a few common marketing goals:
Determining the goal value of a sale is straightforward: the goal value is equal to the amount of revenue generated from a sale. In our previous example, the sale of a $15 shirt should be assigned a goal value of $15. The sale of a $50 pair of pants should be worth $50. A sale where someone buys both the shirt and the pants should have a goal value of $65.
Paid subscriptions (such as SaaS software or publications)
Similar to sales, the goal value of a paid subscription should be equal to the amount of revenue generated from a subscription—if subscriptions to your product or service end after a set period of time and don’t automatically renew, you can just use the price of your subscription as the goal value.
However, with subscriptions that don’t have a set period (which is the case for most SaaS software subscriptions), you won’t know the total revenue generated from a subscription until the customer cancels. In this case, use the average customer lifetime value (the total amount of money a customer will spend by subscribing to your service, commonly abbreviated as CLV or LTV) as the goal value.
If you don’t know the CLV of your product, chat with your product manager or product owner, or whoever’s in charge of revenue—they should be able to provide you with a number or a close estimate. If you need help crunching those numbers, take a look at this helpful guide.
Freemium and free trial SaaS conversions
If your SaaS product or subscription service includes a free tier or a free trial, you’ll need to do a bit more math to determine a more accurate value of a free user subscription. Here’s what you need to know:
- Average customer lifetime value
- Free-to-paid conversion rate
Again, if you don’t have these numbers, a product manager or product owner should be able to provide the details. To determine the value of a free user subscription, multiply the average customer lifetime value by the free-to-paid conversion rate. Use this as your goal value.
For example, if your average customer lifetime value is $1,000 and 2 percent of your free users eventually upgrade to become paying customers, the value of a free user subscription would be $20.
For websites where the goal is to generate leads, the goal value should be equal to the value of one lead. However, as with freemium products, it’s not immediately clear how much revenue a lead will generate, so we’ll use a similar formula to determine the value of a lead. To do so, you’ll need a few numbers:
- Total leads from the website in the past quarter
- Total sales (in dollars) from website leads in the past quarter
If you don’t have those numbers on hand, chat with your sales team—they should be measuring these figures. Once you have those values on hand, simply divide the value of your sales by the total number of leads to get the value of one lead.
As an example, if your website generates 100 leads, resulting in $25,000 in sales, each lead is worth $250. Therefore, you should set your goal value at $250, since each goal completion is expected to contribute about $250 to your organization’s bottom line.
Measuring clicks on a call to action (CTA) in your content is a great way to measure its effectiveness. To calculate the value of a CTA click as a goal, here’s what you’ll need:
- The value of a lead (as determined in the previous section)
- The number of CTA clicks
- The total number of leads generated from visitors who clicked a CTA
That last number can be tricky to find, but if you’re using Google Analytics events to track both CTA clicks and leads, you can find that number in your analytics dashboard.
Start by creating a segment for users who clicked a CTA:
Be sure to update your logic to include the right event category, label, or action that you defined when setting up event tracking on your site.
Once you apply that segment, go grab the number of leads (depending on how you implemented your lead tracking event, it could be under Behavior > Events or Conversions > Goals in your analytics dashboard).
Once you have those numbers, here’s how you calculate the value of a click:
- Divide the number of leads from visitors who clicked a CTA by the number of CTA clicks. This is your CTA conversion rate.
- Multiply your CTA conversion rate by the value of a lead to get the value of a click.
Let’s build off the previous example. We determined that the value of a lead is $250 because our website generated 100 leads that resulted in $25,000 in sales. If it took 1,000 CTA clicks to generate those 100 leads, the value of each click is worth $25. In other words, each click (your goal completion) is worth approximately $25 to your organization.
Finally, if your goal is to generate email subscriptions, you’ll need to determine the value of an individual subscriber to set a goal value. To do this, you’ll need:
- The amount of revenue generated from email subscribers
- The total number of subscribers
To get the value of a new subscriber, simply divide the revenue from your mailing list by the number of subscribers—if you earned $5,000 from your mailing list of 1,000 subscribers, each subscriber is worth $5.
If you don’t directly monetize your mailing list, it can be hard to determine the amount of revenue. If your email subscribers eventually become leads, you can use the total amount of revenue from mailing list leads instead of total revenue from email subscribers.
Determining goal value can be tricky—you might not always have the most accurate numbers, and even your accurate figures may change from time to time. To further complicate things, some goals may simply have a value of $0—not all goals contribute to your bottom line. However, going through this exercise can help you better quantify your marketing progress and let you get the most out of your advertising and web analytics platforms.
If you need a hand determining your goal values, we can help—get in touch with the experts at Quietly.
Image: Julia Sudnitskaya/Shutterstock