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How do you estimate conversion rate off targeted traffic?

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  #1  
Old 01-11-2008, 04:58 PM
Artashes Artashes is offline
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Question

How do you estimate conversion rate off targeted traffic?


OK, we all know that user acquisition cost is how much money you spend in order to get 1 customer. But my question is how do you get to that number?

To give a real case example: Bob has $100 to spend on targeted keyword advertising every month. He bids $0.10/click and receives 1,000 targeted clicks per month. Question is - how can you safely estimate what percentage of those visitors will sign-up for a service? Is it 1 (0.1%)? Is it 5 (0.5%)? Is it 10 (1%)?

If you were to estimate revenue projections for 12-36 months ahead in your business plan, you would need that information as its critical to see what user growth us. So how do you get that conversion percentage? Do you just guess it?

Thanks for any insight.

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  #2  
Old 01-12-2008, 05:58 AM
hcn hcn is offline
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is bob in hosting business?

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Old 01-12-2008, 02:31 PM
Artashes Artashes is offline
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Hah, no, Bob is NOT in hosting business. Let's assume the industry Bob is in has 3 major competitors with average monthly service price of $15. Average top-listed cost per click is $0.10-0.15.

But that information is a bit irrelevant, because what I am trying to understand is how do people estimate their conversion on targeted traffic they buy on AdWords, etc? Will 1 client take 250 targeted clicks? 500? 1000?

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Old 01-12-2008, 08:52 PM
Atarim Atarim is offline
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Well, for a first take, you could apply the conversion rates you already have on your site from other visitors, then adjust over time to be more accureate specifically for the ppc visitors, who might have a different conversion rate than organic visitors.

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  #5  
Old 01-13-2008, 02:03 AM
Artashes Artashes is offline
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Originally Posted by The Hosting Team View Post
Well, for a first take, you could apply the conversion rates you already have on your site from other visitors, then adjust over time to be more accureate specifically for the ppc visitors, who might have a different conversion rate than organic visitors.
True, when you know your user acquisition cost, it is very easy to predict/correct the conversion rate and user growth in future. For example, if you spent $50 in PPC with each click costing $0.25 to convert 1 client, you know you have to bring in 50/0.25=200 targeted visitors to make one sale, which brings the conversion to 1/200*100%=0.50%.

The question is - how do you correctly estimate that conversion rate before heavily investing in business and giving it a shot? Everyone is looking for some realistic (or at least close to realistic) numbers and estimations... That's the hard part - should we just make an educated guess? Is there some sort of resource that profiles industry's averages? How do people know how many clients they will sign up every month and at what cost for an Internet-based business plan?

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Old 01-13-2008, 11:40 AM
Atarim Atarim is offline
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Maybe you could run a small-scale test as a pilot to determine the metrics?

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Old 01-13-2008, 11:59 AM
BurakUeda BurakUeda is offline
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Selection of the keywords are important factor too.
Say you have a hosting company "SmashedPotatoesHosting.com", if you have 1,000 targeted clicks on "Cheap Hosting" keyword, you'll probably get more than 10% sign-ups. But for the keyword "Smashed Potatoes", you'll get 1 customer in maybe more than 10,000 clicks.

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Old 01-13-2008, 05:25 PM
Artashes Artashes is offline
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Originally Posted by The Hosting Team View Post
Maybe you could run a small-scale test as a pilot to determine the metrics?
Running a small scale test would require the business to be setup, and that's exactly what I am trying to determine - whether it will be worth the effort.

Quote:
Originally Posted by BurakUeda View Post
Selection of the keywords are important factor too.
Say you have a hosting company "SmashedPotatoesHosting.com", if you have 1,000 targeted clicks on "Cheap Hosting" keyword, you'll probably get more than 10% sign-ups. But for the keyword "Smashed Potatoes", you'll get 1 customer in maybe more than 10,000 clicks.
So basically it all comes down to the best educated guess one can make? There is no science behind client sign-up rate estimation?

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Old 01-14-2008, 12:47 PM
BurakUeda BurakUeda is offline
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Originally Posted by Artashes View Post
So basically it all comes down to the best educated guess one can make? There is no science behind client sign-up rate estimation?
Well, sort of...
One thing is certain: If you use a direct keyword, you will pay more per click but you will receive more sign-ups, e.g. if you are a host, you will pay huge amount of money if you want to appear in top ten for the keyword "Hosting".

You can drop down the cost but still get decent quality clicks buy narrowing down the keyword. Like, if you use "Louisiana Hosting" you will still on focus, but will pay less cpc.

BUT, all of this is for only 20% of the search engine users. According to a research, 80% of users will not click the sponsored links. They prefer to click on the links in the search results (A.K.A. safe zone).

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