Cost per Order (CPO) refers to the costs incurred during a purchase, an order shipment or when an E-Commerce lead occurs. In online marketing, CPO is used to calculate all costs incurred in the course of an order or when a lead is generated. These include trade promotion fees, subscription fees, and mandatory shipping fees. It is a measure used to establish the effectiveness of marketing measures and is commonly used in affiliate marketing and business promotion on the Internet. The cost per order is also called the cost per lead.
Calculation of the CPO
The CPO is calculated as follows: The total costs of an action are divided by the number of reactions.
CPO = Cost of action / Number of reactions
When setting the profit, the budget for the online campaign is essential for the use of the cost per order. Regardless, the CPO is not used to establish net income in a business sense. Rather, it is used to establish the effectiveness of marketing campaigns against the budget used. Here, the focus is on the number of reactions that resulted from a specific ad campaign.
Use of CPOs
The CPO is the most widely used model in online business promotion. If an ad or banner is shown, many users can see it, but not all impressions draw a click (see cost per click (CPC) or to a purchase. This is why CPO and other cost per models are used. With the CPO, it is feasible to measure the actual success of the ad.
The cost per order value is more than a measure in affiliate marketing. It is a billing model that involves a campaign, a follow-up and the payment of commissions within this model. As a general rule, the CPO is connected to a fee paid by the seller of a product for the placement of advertisements on the websites of its affiliates and partners. The CPO usually carries a fixed amount or a percentage of sales that are paid to partners.
Importance for online marketing
The CPO is an accounting method that is based on actual sales. This has a significant advantage for product sellers: they are able to scale their trade promotion measures in a better way and only pay for the actual sales made. Even though a certain percentage is paid to the affiliates, they are the ones who provide their inventory for the presentation of the commercial promotion to the potential clients. The CPO is also oriented towards the achieved margin: Companies that sell expensive products can generally afford higher values of CPOs, while small sales margins are rather compatible with low values of CPOs. Quite simply, the company's goal is to keep the CPO value as low as practicable. The CPO model is superior to other concepts, which do not take into account the real value of the company's advertising measures. This is because traffic, page impressions, and click-through rates don't necessarily drive sales, even when sales are important from a search engine marketing standpoint. In this way, CPO reduces the risk of overspending on business promotion at a low profit value and is particularly crucial for small and medium-sized businesses that have a smaller budget but want to do business promotion effectively.
Web links
- What is the CPO brickmarketing.com. Accessed 07/15/2014
