When the goal of an ad is to sell a product or service, cost per order is a pricing model that is often used, especially when it comes to internet advertising. Cost per order (CPO) is also known by cost per sale (purchase) and cost per acquisition.
How does the cost per order pricing model work? This model is calculated by dividing the marketing expenses by the orders are placed through the ad. The formula: CPO = cost of marketing / number of responses. This helps to determine how successful the ad campaign is. In addition to cost of marketing, other expenses factored into this number can include shipping costs, packaging costs, storage costs, fulfillment costs, and the cost of the goods themselves.
This type of pricing model can not only help decide if an ad was successful, but who the primary consumers were. With this information, the advertiser can determine if the ad is worth running again or needs to be re-evaluated. The cost per order can also help a company figure out how much they can pay employees and how much the product itself should cost.
Who uses the cost per order pricing model? Cost per order is a preferred model used by internet companies. As mentioned, the information garnered by the cost per order model can help a company to figure out the cost of running things within the business. Assembling, preparing, and shipping costs can be determined by using the cost per order model.
What are the benefits of cost per order? With the cost per order model, an ad campaign can be run on wesbites that are frequented by the target demographic. For example, if a website owner is selling products for fitness enthusiasts, it only makes sense that the ad campaign will run on fitness oriented websites. Higher commissions are a reasonable expectation in this case than if ads run on random websites. With the cost per order model, it is also possible to run two ad campaigns at the same time to determine which one results in more sales.
Is there a way to reduce cost per order? When you have your cost per order numbers, you may decide that you want to cut costs to create a great profit margin. For the costs of goods, speaking with the manufacturer to find out if there are ways to cut costs is a good place to start. Storage costs may also be an issue if the product is not selling quickly. Having too many unsold pieces can increase cost. When it comes to shipping, you can find out if there are any discounts possible, such as if you ship a large amount of product at one time.
Cost per order can be an important tool utilised by web-based businesses. It is the preferred method for reasons listed above, but most importantly it can help a business understand if the current ad campaign is resulting in sales.