CPO as a key performance indicator
The key performance indicator CPO (“cost per order”) describes the costs incurred per sale or lead as part of marketing measures or lead generation. The CPO is calculated by dividing the total of all costs incurred as part of an advertising campaign by the number of responses generated. In the case of pay-per-click advertising (e.g. PPC marketing on Amazon), the total costs of all clicks incurred during the period can be taken into account. It is also possible to consider all marketing costs, including shipping costs.
CPO = total cost of the campaign / number of reactions
The benefit of the CPO is the insight into the effectiveness of marketing measures. By comparing the total costs and the total number of responses, it is possible to see at a glance how much a lead generation campaign has cost overall. When interpreting the CPO, it is also useful to consider it in the context of the budget allocated to the advertising campaign. If the CPO is too high, for example, the advertising budget will be used up before the sales targets are reached. When considering the CPO, the aim is to maximize the number of sales while minimizing the costs of the marketing measures, which is reflected in a relatively low CPO.
CPO as a billing method
The term “cost per order” can not only be understood as a performance indicator, but also describes a remuneration model in online marketing. This model stipulates that users only pay for their advertising if there is a response to the advertising measure. This model is often used in affiliate marketing and can be illustrated with an example:
In this scenario, an affiliate is successful and customers place an order for € 50 after they have reached the online store’s website via the affiliate. Now the affiliates usually receive a percentage of the sales price, let’s say 5 %. The commission for the affiliate or the CPO for the online store is therefore 5 % of the sales price, i.e. € 2.50. It is not uncommon for the commission to be calculated using a fixed price rather than a percentage, but this is better illustrated using the CPL (cost per lead) billing model.
Differentiation from the CPA billing model
Similar to the CPO billing model, with the CPA billing model, advertisers only pay the advertising providers if the advertising campaign has led to a specific result. With the CPO billing model, advertisers pay advertisers when customers have made a purchase. In the CPA model, advertisers pay advertisers when customers have taken a predefined action, such as subscribing to a newsletter, downloading a paper or registering on a website.