What is the Cost Per Order?
In e-commerce, the key figure Cost per Order (CPO, costs per order) indicates the costs for an order, for a completed sale or for a generated lead. In online marketing, this key figure is used both to calculate all costs incurred in connection with an order, from marketing costs to shipping costs, and as a reliable measure of how effective certain marketing measures are.
- Used in Internet advertising and affiliate marketing
- Is the total cost divided by the responses generated
- Measures the effectiveness of campaigns relative to the budget
This is how the Cost Per Order indicator is calculated
CPO is therefore the amount spent on advertising or marketing to eventually end up with a sale or lead. This cost per order is an important part of any web-based business, especially for those who are just starting out or have a very tight budget. The cost per order is calculated by dividing the marketing cost by the number of responses generated. The cost per order formula is therefore as follows: CPO = cost of the action / number of responses. The total costs for each promotion are divided by the total number of responses generated. The Cost per Order indicator can be used to evaluate the effectiveness of a particular type of marketing and to determine which type of marketing works well with the targeted consumer demographics. This cost per order is primarily used in the decision-making process for Internet companies. This can affect many different areas of the business, from employee benefits to the cost of the products. Decisions that can be made on the basis of cost per order include How much do you have to pay employees to assemble or prepare products for shipment? What types of equipment can be used or purchased for product manufacturing? What are the best shipping methods that can be used to process customer orders on time. What price can be charged for a product? What is the type and scope of marketing that can be used?
Cost per order – key performance indicator and remuneration model
The advertising budget of the respective online campaign is important for the use of the cost per order key figure in the context of profit determination. However, the Cost per Order concept is not actually used to determine profits in a business sense. Rather, this figure is used to determine the effectiveness of campaigns in relation to the budget used for them. If the cost per order value becomes too high, the advertising budget will be used up before the sales targets are reached, which should of course be avoided. In general, the goal is always to maximize the number of sales or leads while minimizing the cost of the marketing effort, so that all this is reflected in the smallest possible CPO number. The central question is always how many user reactions a defined advertising measure has actually generated. However, the term cost per order is not only an important performance indicator, but also describes a common remuneration model in the field of online marketing. This model stipulates that you only pay for an advertisement if there have been real reactions to the measure. Such a model is used quite often in affiliate marketing. Cost per order often includes a fixed amount or percentage of the sale, which is paid out to the partner. While the cost per order is a very important part of the internet business, there are experts who also recommend that the cost per order values should be treated with some caution. Indeed, these figures can sometimes be misleading as they do not take into account other factors such as the consumers decision time.