One of the ways you can measure goals and goal values in Google Analytics (or any marketing analytics system) is through cost equivalence. This is the least best way to measure the impact of your marketing, but in some cases, it’s better than nothing.
What is cost equivalence?
Cost equivalence is giving a goal the valuation of what it would have cost you to achieve the same goal by other methods. For example, let’s say you have a newsletter signup box on your website. Every email address you collect through organic means (SEO, unpaid social, etc.) is an address that you don’t have to pay for from a list broker.
Thus, if working with a list broker costs you $55/CPM (a not uncommon rate), a single email address is worth about 5 cents; 100 email addresses is $5.50 of value you don’t have to pay for.
The same cost equivalence measures can be used for things like Twitter Followers – who follows you organically are people you don’t have to pay for with a Promoted Account.
All of this seems logical, doesn’t it?
Why is cost equivalence bad?
Cost equivalence fails to take into account impact. It only calculates the money you saved. Let’s look at the email example. If every email address is worth 5 cents because that’s what you pay a list broker, it doesn’t take into account the value of the email addresses. For example, I’ve been selling my book Marketing Blue Belt. Email is one of the many methods I’ve sold with, and email is one of the top ways people have bought the book, accounting for 30% of sales.
I would have vastly underestimated the value of email addresses if I’d gone the cost route, rather than going with the actual value created.
Now kick it up a notch. Let’s say you’ve got a complex B2C or B2B sales cycle. Each sale is worth thousands or millions of dollars. One email address could be the first touchpoint in a value chain that eventually results in a 7-figure sale. Would you still value that email address at 5 cents? I should hope not.
The only time cost equivalence is appropriate as a goal value in Google Analytics is when you’ve got absolutely no other monetary outcome. These situations are exceedingly rare. Even non-profits and politicians seeking office need donors to keep the lights on, regardless of the fact that their ultimate mission has a non-monetary outcome (common good and election, respectively).
Avoid using cost equivalence whenever possible in your marketing analytics.
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