Cost Per Order (CPO)

Cost per order (CPO) refers to the costs incurred during a purchase, an order placement, or when a lead is given in e-commerce. In online marketing, the CPO is used to calculate all costs incurred in the course of an order or when a lead is generated. These include any advertisement costs, subscription charges, and obligatory shipping costs. It is a measure used to determine the effectiveness of marketing measures and is often used in affiliate marketing and internet advertising. The cost per order is also referred to as cost per sale or cost per lead.

Calculating the CPO

The CPO is calculated as follows: The total costs of an action are divided by the number of the reactions.

CPO = Action costs / No. of reactions

When determining the net income, the online campaign budget is important for the use of the cost per order. The CPO is, however, not used to determine the net income in a business sense. Rather, it is used to determine the effectiveness of marketing campaigns with respect to the budget used. [1] Here, the focus is in the number of reactions that resulted from a specific advertising campaign.

Use of CPO

The CPO is most commonly used in online advertisement. If a text or banner advertisement is displayed, many users get to see it, but not every impression draws a click (see cost per click (CPC)) or a purchase. This is why the CPO and other models from the cost per area field are used. With the CPO, it becomes possible to measure the actual success of the advertisement.

The value for the cost per order is more than a measure in affiliate marketing. It is a billing model that implies a campaign, a tracking, and the payment of commissions within this model. As a rule, the CPO is connected to a fee that is paid by the seller of a product for the placement of advertisements on the websites of his/her affiliates and partners. The CPO often involves a fixed amount or percentage of the sales that is paid out to the 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 advertisement measures in a better way and only pay for the actual sales made. Although a certain percentage is paid to the affiliates, it is the affiliates that provide their inventory for the presentation of advertisement to potential customers. The CPO is also oriented to the achieved margin: Companies that sell expensive products can generally afford higher CPO values, whereas small sales margins are rather compatible with low CPO values. Basically, it is the goal of the company to keep the CPO value as low as possible. The CPO model is superior to other concepts, which do not take the company’s actual value of the advertisement measures into account. This is because the traffic, page impressions, and click-through rates do not necessarily draw sales, even when these are important from a search engine-marketing point of view. The CPO therefore reduces the risk of spending too much on advertisement at a low utility value and is particularly crucial for small and mid-size companies that have a smaller budget but wish to advertise effectively.

References

  1. What is Cost Per Order (CPO)? brickmarketing.com. Accessed on 07/15/2014

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