In the equation, y represents conversions and x represents “cost”. To predict y for any given x , we replace x with a real number. Assume a cost of $5,000. We say y = 28.782 * ln( 5000 ) – 190.36. Using a calculator, we get 54 conversions per day.
Now, the real power comes here when we extend this calculation beyond the graph to where the expenses haven’t been before. The data points on the chart show that the highest spend ever per day was under $7,000. If we replace x with 10,000, (an expected spend of $10,000 per day), I can get an estimate using the formula, of 74.7 conversions per day.
Bonus: Finding Optimal Points or Diminishing Returns with CPA
Graphing “cost” and “conversions” together is extremely powerful in being able to predict conversions at different spends. But in reality, we are often more interested in lowering CPA or predicting conversions at a specific CPA. We can also plot CPA against conversions to better understand this.
From the CPA chart on the right, we identify a Taiwan Phone Number minimum point where the CPA is lowest on the cost dimension, this is the bottom of the “U” shape. This point also corresponds on the left graph (cost vs conversions) with the green line.
It is essential to mention that the regression only uses historical data. All costs and conversion data are based on what has happened in the past. Therefore, if you expect your performance to improve and conversions to increase in the future, this will not be reflected in these models.
To fix this, taking only more recent data, like six months back or three months back, might be a better option. Similarly, you can remove or include “days” during sales periods which may or may not be relevant, so as not to skew the data.
Case studies and application
Using this methodology, we were able to achieve three key results with clients:
- We’ve helped existing customers estimate what will happen if they increase their monthly spend by $10,000. This is a very common customer question and this method is better than educated guesses because it is modeled with data.
- We were able to show existing clients where the optimal CPA is and what potential exists in the account. For one of our top clients in the competitive legal space, this allowed them to reduce CPAs by over 20% and keep conversion volume stable.
with this in mind, has made new account audits faster and more accurate for us.