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Definition

Cost per order, also called cost per purchase, is the cost of internet advertising divided by the number of orders. Cost per order, along with cost per impression and cost per click, is the starting point for assessing the effectiveness of a company's internet advertising and can be used for comparison across advertising media and vehicles and as an indicator of the profitability of a firm's internet marketing.[1]

Example

An internet retailer spent $24,000 on online advertising and generated 1.2 million impressions, which led to 20,000 clicks, with 1 in 10 clicks resulting in purchase.
  • Cost per impression = $24,000 ÷ 1,200,000 impressions = $0.02
  • Cost per click = $24,000 ÷ 20,000 clicks = $1.20
  • Cost per order = $24,000 ÷ 2,000 purchases = $12.00

Purpose

The purpose of the "cost per order" metric is to measure the advertising cost required to acquire an order. If the main purpose of the ad is to generate sales, cost per order is the preferred metric.

Construction

This is the cost to generate an order. The precise form of this cost depends on the industry and is complicated by product returns and multiple sales channels. The basic formula is:

      Cost per order ($) = Advertising cost ($) ÷ Orders placed (#)

References

  1. ^ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; and David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance (Second Edition). Upper Saddle River, New Jersey: Pearson Education, Inc. <http://www.amazon.com/Marketing-Metrics-Definitive-Measuring-Performance/dp/0137058292>

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