Understanding Cost Per Acquisition in Digital Marketing - CPO Definitions & SEO Strategies Explained

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Cost per order (CPO)

Contents

• CPO definition
• CPO calculation
• CPO in affiliate marketing
• CPO pros and cons
• CPO alternatives
• References

CPO definition

Cost per order, or CPO, is a term used to describe the average marketing spend needed to drive any purchase to your website. Cost per order, also known as cost per purchase, is often used to assess the effectiveness of an internet advertising campaign.

CPO calculation

Here’s how to calculate CPO - you’ll need to divide the advertising costs by the number of received orders:

Cost per order ($) = Advertising cost ($) / Orders placed (#) [1]

Here’s an example of calculating CPO: you paid $200 for placing a banner on a website and at the end of the campaign you received 40 orders. 200/40=$5 which means that the CPO in this case is $5.

CPO in affiliate marketing

CPO is often used in affiliate marketing, meaning that an advertiser pays for ads only when a purchase is confirmed. It also implies a billing model that includes a campaign, tracking, and the commission payment.

CPO often refers to a fee that’s paid by the seller of a product for placing ads on the websites of affiliate partners. It may include a fixed amount or a certain percentage that is paid out to partners.

CPO pros and cons

The main benefit of using the CPO model is that a commission has to be paid only in those cases when a user makes a purchase within a negotiated period of time, following their interaction with the ad.

That means that an advertiser has a lower risk of wasting their marketing budget on ineffective adverts, compared to other models, such as cost-per-view or cost-per-click. Thus, CPO ads can be included as a fixed cost component when calculating the profitability of promotional campaigns.

However, a major disadvantage of the CPO model is the fact that website operators have to rely on the honesty of their business partners. It is almost impossible to track if the advertising partner reports the number of sales correctly. On the other hand, Does a blog that offers ad space really have as much reach as claimed? Is the provided ad material of such quality that it actually leads to sales? CPO as a billing model only leads to a win-win situation if both parties work fairly and transparently on optimizing the cooperation.

CPO alternatives

CPO is not the only model you can use in advertising and affiliate marketing. Such models as cost per action (CPA), cost per click (CPC), and cost per lead (CPL) are very similar to CPO with the difference that advertising fees are paid when traffic is generated from advertisers (but purchases are not made yet). The cost per view (CPV) is another model that’s more often used to advertise videos or online games.

References

1. https://en.wikipedia.org/wiki/Cost_per_order

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