When you are considering starting a web marketing strategy or trying to learn about advertising operations, you may hear the term “CPO (Cost Per Order)” more often. However, many people do not know what CPO means or what kind of indicator it is.
Therefore, in this article, we will explain the overview of CPO, the difference from CPA, and the difference from CPR. We will also introduce how to calculate and improve CPO, so please refer to it.
What is CPO?
First, let’s take a look at the overview of CPO. CPO (Cost Per Order) is an indicator often used in the advertising and marketing field. CPO is an indicator that represents the cost to acquire one order in a specific advertising campaign or marketing activity.
Specifically, it is the cost of marketing activities, such as advertising and promotion costs, divided by the number of orders won. Calculating CPO allows you to evaluate which advertising campaigns and marketing strategies are effective and helps you decide on the best allocation of your budget.
For example, although the optimal CPO differs depending on the genre, if the CPO is 200,000 yen when selling a product with a unit price of 100,000 yen, there is a high possibility that the company’s overall profit will be negative. Also, since CPO can be calculated for each medium, a strong option is to compare SNS ads and search ads and focus on the medium with the lowest CPO.
What is the difference between CPO and CPA?
CPA is a similar word to CPO. CPO (Cost Per Order) and CPA (Cost Per Acquisition) are similar indicators, but the difference between them is in the “number of orders” and “number of acquisitions.”
CPO shows the cost relative to the number of orders, whereas CPA shows the cost of acquiring a specific action (form filling, registration, app download, etc.). CPO targets specific orders and sales, while CPA targets different actions.
For example, suppose you want to sell a product by following these steps:
In this case, even if the CPA for the action of filling out the LP inquiry form is 5,000 yen, there are cases where some users do not make the payment after filling out the inquiry form. CPO cannot be calculated because no orders have been received. On the other hand, if you just fill out the form and complete the payment, an order will be generated, so the CPA and CPO will be 5,000 yen.
What is the difference between CPO and CPR?
Next, in addition to CPO, there is also an indicator called CPR. CPO (Cost Per Order) and CPR (Cost Per Reach) are similar indicators, but they are characterized by evaluating different aspects.
In conclusion, CPO relates cost and order quantity, whereas CPR evaluates the reachability of advertising. CPR shows the cost of how many people your ad is shown to (reached). The difference is that CPO focuses on order acquisition, whereas CPR focuses on advertising exposure.
In addition, there is also the term CPM, which refers to cost per 1,000 impressions, and there are many other terms you need to remember when it comes to advertising and marketing. Therefore, if you are going to work as a marketing company or manage advertising, you should at least understand the meanings of the words introduced above.
What is the background behind the need for CPO?
Why is CPO (Cost Per Order) needed or considered important? There are three main reasons why a CPO is necessary:
Let’s look at each in turn.
New products come out quickly
In today’s world, where new products are entering the market rapidly and competition is fierce, you need to allocate your advertising budget optimally. Understanding CPO helps you determine which products and services are cost-effective.
Given the current situation as described above, if you launch a new product or operate advertising without understanding CPO, there will be cases where you may generate sales but not profits. This makes it impossible to continue releasing new products.
Similarly, more and more of our competitors are releasing new products in similar cycles, and it is important to understand CPO in order to beat the competition.
Because PDCA is important
The PDCA (Plan-Do-Check-Act) cycle is a method for improving marketing activities and continuously validating effective strategies. Calculating and analyzing CPO is essential for improvement as part of the PDCA cycle.
Improving CPO means lowering the acquisition cost per order. This has the advantage of speeding up the new product development cycle mentioned above and acquiring customers before the competition.
There are cases where you need to pivot
Finally, one of the reasons why CPO is so important is that there are cases where pivoting is necessary. The business environment is subject to change, and sometimes a change in strategy is required. By tracking CPO, you can improve underperforming campaigns and ads and adjust your company’s overall strategy.
What is the importance of CPO?
Although there are some overlaps with what has been explained so far, CPO (Cost Per Order) is extremely important. Understanding CPO and working to improve it will lead to effective advertising budget allocation and maximizing profits.
Additionally, by understanding accurate CPO, you can sometimes identify unnecessary marketing methods and reduce internal resources.
Things to consider when considering CPO
Next, we will introduce two factors that should be considered when considering and calculating CPO (Cost Per Order).
Tracking the above two indicators at the same time will make it easier to run the PDCA cycle. I will briefly explain the two indicators.
Limit CPO
The limit CPO is the maximum budget that can be spent per order. For example, suppose you have a product that generates a profit of 3,000 yen per sale, and each customer purchases this product 6 times. In this case, the total profit for 6 months is 18,000 yen.
In other words, the limit CPO can be calculated as 18,000 yen. However, in reality, if the profit amount = marginal CPO, there is a possibility that there will be no profit and it will be negative, so the marginal CPO needs to be set a little lower.
By thinking about the CPO limit in advance, you can determine how much CPO it is okay to advertise.
LTV (lifetime value)
LTV (lifetime value) refers to the sales and profits that a customer generates over his or her lifetime. For example, suppose one customer continues to purchase a product with a unit price of 5,000 yen for 24 months. Also, assume that the total cost for 24 months is 50,000 yen.
In this case, the LTV will be 70,000 yen (5,000 yen x 24 months – 50,000 yen). The method of calculating LTV may vary depending on the company, but the basic idea is as above.
Then, by considering CPO and LTV at the same time, you will be able to identify the medium with the highest LTV. For example, let’s say the CPO of a social media ad is 30,000 yen and the LTV is 100,000 yen. On the other hand, let’s say that the CPO of Google’s search ads (listing ads) is 10,000 yen and the LTV is 50,000 yen.
At first glance, it looks like SNS ads generate more sales, but search ads generate more profits. Therefore, in this case, it would be best to focus on search advertising.
By evaluating CPO in relation to LTV in this way, it becomes possible to further optimize the marketing and advertising strategies of the entire company.
How to calculate CPO
CPO (Cost Per Order) can be calculated using the following formula.
CPO=advertising cost/number of orders
For example, if your monthly advertising spend is 5 million yen and the number of orders is 500, your CPO will be 10,000 yen.
Regarding CPA, which I introduced earlier, it is different from the calculation method of CPO mentioned above. CPA is the cost per action, so try calculating by changing the number of orders above to each action.
How to improve CPO
CPO (Cost Per Order) requires continuous improvement. This is because improving CPO can lead to optimization of advertising strategies and improvement of profit margins. In conclusion, improving CPO comes from increasing LTV. The methods to improve CPO (LTV) are as follows.
Let’s look at each in turn.
increase purchase price
First, consider raising the unit purchase price (unit price of the product). By increasing the purchase price, you can increase the customer’s LTV. However, it is necessary to prevent customer satisfaction from decreasing by raising the unit purchase price, and at the same time, LTV from decreasing. Based on these considerations, it would be a good idea to test measures to increase the unit purchase price.
Increase purchase frequency
Next, consider increasing the frequency of purchases per customer. As the frequency of purchases increases, customer LTV will also increase. For example, you can consider measures such as distributing information in email newsletters or LINE official accounts, or running regular campaigns. Additionally, if you give customers a discount of a certain amount when they purchase two or more items at the time of their first purchase, you can increase the likelihood that they will purchase multiple items at the time of their first purchase.
Develop (increase) customer loyalty
Finally, it’s also important to develop customer loyalty. Customer loyalty refers to the trust that customers have in a product, service, or company. When customer loyalty increases, it becomes difficult for customers to switch to other companies’ products, and it becomes easier for them to purchase other products of your company. Another benefit is that customers will be able to post their own reviews and positive reviews.
summary
In this article, we have explained CPO. CPO is the cost per order. Improving CPO has the advantage of increasing your company’s profit margin and making it easier to develop optimal marketing strategies.
In order to improve CPO, it is important to increase customer LTV. Why not use this article as a reference to deepen your understanding of CPO?