What is CVR in Digital Marketing?

Digital marketing is the new buzzword in the business world today. Companies are planning to invest and are already investing more and more of their marketing funds in digital marketing activities. Any marketing activity done by the business through digital platforms is known as "digital marketing activities." Digital marketing is a broad term that encompasses a variety of marketing activities such as −

• Affiliate Marketing

• Search Engine Marketing (SEM)

• Search Engine Optimization (SEO)

• Social media marketing

• Content Marketing

• Email Marketing

• Website marketing, among others.

Companies are investing their funds in digital marketing activities; hence, they need to understand their digital marketing ROI to check the effectiveness of the program, and this is where the conversion ratio (CVR) comes into the picture.

In this article, we will be diving deep into the concepts of conversion ratio (CVR) and click-through rate (CTR), how we can calculate conversion ratio, and what the advantages of doing the same are.

Digital Marketing and its Various Forms

All digital marketing activities can be divided into two types −

• Paid marketing activities − Here the company is paying the platform a sum of money to showcase its ads to the consumer. Irrespective of the content quality, engagement rate, or products of the company, the company’s website link or product description comes to the top because of the amount that they pay to platforms. For example, sponsored ads on Instagram, Facebook, and LinkedIn pop up on your wall; YouTube advertisements appear when you are watching a particular video; or search results appear at the top of the search engine results page when you search for certain keywords.

• Unpaid marketing activities − Here the company is ranking on the higher side of the platform because of its content quality, engagement rate, and products or services. Companies work hard to build an image in front of consumers, and consumers browsing websites or digital platforms showcase the company’s posts because of their popularity and quality. Here, the company is not paying anything to the browser.

Concept of Conversion Ratio (CVR)

When the company is paying the platform to showcase its ad, they need to understand how much sales or conversion they are getting from ads on that site. Hence, it becomes crucial for them to calculate the conversion ratio.

The conversion ratio is the percentage of people who saw the advertisement versus the percentage of people who took action when they saw the advertisement through the same link that was mentioned in the ad.

Conversion Ratio = (Number of users who took action after watching the advertisement / Number of users who clicked on the advertisement) * 100.

So, for example, if the company has decided to advertise its product on a browsing website like Google, If 1000 people clicked on the ad and only 25 of them purchased the advertised product, the conversion ratio is (25/1000) * 100 = 2.5%.

Advantages of Calculating the Conversion Ratio (CVR)

• CVR assists the company in monitoring performance − CVR assists the company in understanding how well their advertisements are performing. Today's consumers are spoiled with data. In a day, they generally show 4000 ads, and on a good day, they are able to remember 200 of them. The company has to make that list of 200, and with CVR, companies can get an understanding of the effectiveness of their ad.

• It assists the company in determining whether the ad is effective − if you are spending lakhs of rupees on digital marketing paid advertisement methods and only converting 1-5% of the users, there is something wrong with your ad. Companies can modify their ad after calculating the conversion ratio and, through the user journey, understand what is stopping the consumer from making the last move.

• It assists the company in determining which channels are more effective for the company − For example, if you are a fast-moving consumer goods company selling packaged foods such as Lays, Noodles, and others, channels such as social media platforms and YouTube ads are preferable. There is no point in doing email marketing or sponsoring ads on LinkedIn. Companies can gain a thorough understanding of which channels work best for them by utilizing CVR.

Click Through Rate (CTR) and Conversion Rate (CVR)

CTR is something that is closely linked with CVR. In layman's terms, click-through rate refers to how many people clicked on an ad if it was shown to 1000 people. If we calculate CVR and CTR, then it is going to be more useful data. CTR is important because in CVR we are just calculating the number of people who converted versus the number of people who were shown the ad. One big thing that is missed is: did the company have the chance to market itself? With CTR, companies can understand that if the ad was shown to 1000 people, 400 of them clicked upon the ad, and out of those 400, the company could convert 25 of them. It helps the company understand its true conversion ratio. CTR can be calculated in the following manner −

CTR = (Number of people who clicked on the ad / Number of people who saw it) * 100.

For example, if 400 people are clicking upon the ad out of 1000 people who are shown the ad by the browser or the platform, then CTR = (400 / 1000) * 100. 40% is the CTR in this case.

So, whenever the company is calculating CVR, they should make it a mandate to calculate CTR and then make their analysis and decisions regarding the effectiveness of the advertisement, channel, and efforts. Across all industries, we can see that a CTR of 0.35% is considered good in the case of display advertising.

• A low CTR and high CVR − This tells us that our application or product is good, but the company is unable to advertise its product or engage with its audience, and hence marketing initiatives should be improved by the company.

• A high CTR and low CVR − This tells us that the company’s marketing initiatives are top-notch and the consumers are engaging with the brand, but there are problems with the product or the user journey, thereby indicating that the company should evaluate its marketing funnel. The marketing funnel evaluation will tell the company where it is losing customers.

CTR and CVR are both helpful for the company to understand the effectiveness of its marketing campaign. It helps the company understand how they are performing in this fast-paced digital world. Every ocean is a red ocean for the company, and hence the company has to excel in terms of products, after-sale services, and marketing initiatives to attract and retain consumers. It is time that companies stop using their experience, judgment, and opinions to check the effectiveness of their initiatives and turn to the data-driven world, where everything is measurable and quantifiable. It is time, as a digital marketer or as a company, that you start using technology and AI to stand out in the crowd of thousands.