Metrics in the online marketing business – CPC, CPM, CPO, CAC, CLV

Chats and money for KPIsWhen you start with online business you will read a lot about 3 letter abbreviations like CPC, CPM, CPO, CACCLV etc.
This blog post will give an overview about the most important abbreviations, explain what they measure, and how to influence them.

General

Marketing is about achieving goals. It is smart to make these goals measurable by a certain metric. These metric are also called KPIs. The most important KPI in a company is Return on Equity – ROE. This number tells you how efficient this company is generating profit. It is obvious that efficient marketing correlates with high ROE. This means if you optimize marketing you also optimize ROE.

Example for Return on Equity:

We have two companies A and B. They are both worth $1,000,000. A makes $100,000 profit and B makes $200,000 profit. You see these numbers in the following table:

Company Name Company Value Company Profit (Net Income) Return On Equity
A $1,000,000 $100,000 10%
B $1,000,000 $200,000 20%

Here are some numbers for tech companies for June 30, 2013:

Company Name Return On Equity
Facebook 4.45%
Apple 29.94%
LinkedIn 4.18%
Google 15.83%
Groupon -12.15%

So lets go back to topic for online marketing metrics.

CPM – Cost Per Mille

Cost per Mille is the cost to display 1,000 times a certain advertisement to somebody. This indicator is mainly influenced by the advertisement network size, the efficiency of the organizational and technical processes and the maintenance costs of the network. A normal price is between $3.00 to $15.00.

The cost is especially interesting for branding campaigns where the goal is to make a certain brand more popular.

If you want to influence this metric you can change the medium e.g. from paid search to banner advertisement.

CPC – Cost Per Click

Cost Per Click is the cost that you have to pay so that a certain person that sees one of your advertisements is going to click on it and visit your website. A usual price is between $0.05 up to $5.00. This number is especially interesting in paid search because you are bidding on keywords and have a direct influence on the Costs Per Click.

To influence cost per click you can use long tail strategies which are for example used by incentergy and you can use optimization for bidding which is also implemented by incentergy to lower the costs per click and enhance the quality of the click.

CPO – Cost Per Order

Cost Per Order are the marketing costs that you have to pay to generate a certain order on your website. The utility margin decreases when you spend the same money in the same campaign. The average order value is around $80. Average costs per order are between $10.00 to $250.00. Cost Per Order highly depends on the channel where you run your marketing campaign. Further it can also be used to compare offline campaigns like TV, billboard or radio with online campaigns like paid search or email marketing.

You should always have an optional field in your registration and checkout process where you hint the customer where he may find out more about your company or product.

CAC – Customer Acquisition Costs

Customer Acquisition Costs are the costs for you to acquire a new customer. This number is connected to CPO. The difference is that you might for example give a voucher to a first time customer or if a customer recommends another customer, and therefore CAC can be a lot higher then CPO. A common price is $10.00 to $500.00. To have reliable results you have to capture data over a long time.

CLV – Customer Lifetime Value

Customer Lifetime Value tells you how much revenue you make in average with a customer. A common number for 1 year and 1 customer would be between $40.00 to $1,000.00. Amazon is a company with one of the highest Customer Lifetime Values e.g. prime customers are spending around $900.00 a year.

If you want to have high lifetime values then you have to maintain your loyal customers with regular special offers, great customer service, and innovative ideas so that your customers feel special.

If you are interested in optimizing these metrics automatically and with the newest statistical methods feel free to contact us.

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