What is cost per sale?
Cost per Sale (CPS) describes a billing model for Internet advertising in online marketing. Translated, CPS means cost per sale. In this model, the commission is calculated on the basis of sales transactions that have taken place. Cost per sale is a term that is used especially in affiliate marketing.
- Monetary amount for each sale generated by ads
- Billing model used to pay for the placement of advertising
- The key figure helps to reduce costs and increase profit
How Cost per Sale works
For example, an advertiser books an advertising banner on a busy website, and it is recommended that the page generates as many sales as possible so that both the affiliate and the advertiser can generate good sales. For the advertiser, the Cost per Sale model is favourable, as they do not have the risk of paying for page impressions or traffic. So clicks on the ad do not burden the marketing budget in any way. Costs only arise when the customer buys, so cost per sale is particularly interesting for small and medium-sized companies with low advertising budgets. The Cost per Sale key figure (CPS) is usually used by advertising teams to determine the amount of money for each sale generated by a particular ad. By understanding and tracking the CPS, advertisers can take action to reduce costs, increase profits and optimize productivity. The CPS can be calculated by dividing the total amount spent by the company on the advertising campaign (the cost) by the sum of all sales made. While the cost per sale can be applied to all advertising campaigns – including television and radio advertising, printing, etc. – the CPS can be calculated by dividing the total amount spent on the advertising campaign (the cost per sale) by the sum of all sales made. -it is most effective and accurate in measuring digital advertising, as the performance of the ad can be broken down into smaller details such as clicks and ads. In a digital campaign, the consumer clicks through an ad to the companys website to complete the transaction. Once the customer reaches the main website, a pixel is attached that “tracks” the user to the checkout. This enables a much more accurate and precise CPS calculation than traditional media campaigns.
Further considerations on cost per sale
In order to calculate the cost per sale, the ad team must first define a budget and time frame for the campaign. Once the ad is active, each individual sale is tracked during the selected time period. Then, as mentioned above, the total cost of the campaign is divided by the number of sales to determine the cost per sale. The formula is: CPS = total cost / sales total. When calculating the Cost per Sale, all aspects of the campaign must be considered. To better understand both the cost per sale and the strength of the ads, several other factors should be measured. The process of calculating cost per sale provides a variety of figures that can be used to identify areas within the company where sales productivity can be strategically improved. However, optimizing productivity is an ongoing process. Therefore, cost per sale should be calculated on an ongoing basis to help companies find various ways to reduce costs while improving results and increasing revenue. Companies can reduce the cost per sale and increase profits by, for example, conducting sales training, website optimization, and customer retention training. Sales training identifies and catalogues the best practices of top salespeople and disseminates them throughout the sales organisation. Website Optimization ensures that the site is easily accessible, functions properly and provides a positive experience for customers, making repeat visits easier. While the CPS is a valuable metric, it does not provide an indication of the overall value of the campaign, as sales after the end of the campaign are not taken into account.