As an advertiser, you want to increase your number of conversions, and your obvious step would be to increase bids. Does the cost per conversion increase when you increase bids? What would the cost come to be?
Most people assume a linear cost growth model. Cost per conversion actually increases exponentially with more conversions.
Let’s consider an example. An advertiser generates 1,000 conversions a month at $50 per conversion, resulting in a cost of $50,000 per month. They aim for 1,500 conversions monthly by increasing bids for targeted keywords. Increasing keyword bids generates more clicks at a higher CPC. For a 50% conversion increase, one would need to increase bids by 70% (not a scientific calculation; this number varies with the current position of ads). Since our conversion ratio will not change, this results in a 50% increase in the number of conversions and a 70% increase in cost per conversion.
The equation now changes to 1500 conversions a month at $85 per conversion, which results in a cost of $127,500. Here is a summarized result of our exercise.
| Scenario | Conversions | Cost Per Conversion | Cost |
|---|---|---|---|
| Before | 1000 | 50 | 50000 |
| After | 1500 | 85 | 127500 |
As you can see from the result, cost increased by 155% for a 50% increase in conversions. Remember, costs rise exponentially with more conversions.
