Convertibility is a key metric in MMM, showing how well your marketing spend drives outcomes like sales, leads, or brand awareness. This article explains what Convertibility is, how to calculate it, and why it matters for marketers.
What is Convertibility?
Convertibility measures how efficiently marketing investments translate into business outcomes. It helps marketers determine how well their money is spent in driving their goals, such as generating sales, attracting leads, or increasing brand awareness. Think of it as a way to gauge the "bang for your buck" when it comes to marketing spend.
How is Convertibility Calculated?
To explain the calculation of Convertibility, let’s first break down two key concepts used in the formula:
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Saturation Curve: This curve illustrates the diminishing returns of your marketing investments. As you spend more on a particular channel, the impact (e.g., sales or leads) increases up to a point but eventually starts to plateau, indicating that further spend yields less incremental value.
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Key Points on the Curve:
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vMax: The highest point on the Y-axis of the saturation curve, representing the maximum possible impact or outcomes for a given channel.
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kM (Key Milestone Point): The X-axis value that aligns with the point where the impact reaches half of its maximum (vMax/2).
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The Convertibility Formula is:
This means that Convertibility quantifies how much marketing spend is needed to achieve the kM level of outcomes.
Example:
Imagine you are running marketing campaigns for a brand:
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Campaign A (Paid Search): You spend $100,000. The saturation curve analysis shows that the maximum possible sales increase (vMax) from this channel is 10,000 units. The kM point is reached when 5,000 units are sold.
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Convertibility = $100,000 / 5,000 = $20 per unit sold.
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Campaign B (Social Media): You spend $80,000, with a vMax of 8,000 units and a kM point of 4,000 units.
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Convertibility = $80,000 / 4,000 = $20 per unit sold.
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While both channels have a Convertibility of $20 per unit, the decision to increase or decrease spend depends on the performance curve and how much further return can be achieved before diminishing returns kick in.
Why does Convertibility matter?
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Optimizing Budget Allocation: Convertibility helps you identify which channels provide the most efficient returns on your investment, making it easier to allocate your budget effectively.
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Benchmarking Performance: It allows you to compare channels and campaigns, revealing which strategies are underperforming or exceeding expectations.
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Guiding Strategic Decisions: By understanding how each channel converts spend into results, you can make data-driven decisions to maximize your marketing ROI.
Convertibility shows how effectively your marketing spend drives results, using a combination of media spend and responsiveness analysis through the kM point of a saturation curve. By measuring Convertibility, marketers can better understand which channels provide the best returns and where to optimize their investments for maximum impact.
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