Cost per order (CPO) in marketing explained
Cost per order (CPO) is a key marketing metric that evaluates the effectiveness of sales and marketing activities. CPO measures the average cost a company incurs for each order placed or sale made. This metric is critical for evaluating the profitability of marketing campaigns and sales efforts and optimizing marketing strategy. Discover even more KPI & marketing calculators here.
Meaning: Definition in marketing
The CPO indicates how much money a company has to spend on average to generate an order. It is calculated by dividing the total cost of marketing and sales activities by the number of orders generated. A low CPO indicates that the company is operating efficiently and generating sales cost-effectively. A high CPO, on the other hand, may indicate inefficient processes or marketing campaigns.
Calculation: Calculate CPO
Calculating the cost per order is simple. You take the total cost of marketing and sales activities and divide it by the number of orders generated. The formula is:
CPO = total costs for marketing and sales / number of orders
To illustrate, let’s say a company has invested 10,000 euros in marketing campaigns, sales processes and personnel, and has received 500 orders. Then the CPO is:
CPO = 10,000 euros / 500 orders = 20 euros per order
Meaning of the CPO calculation
CPO is a critical metric for measuring the efficiency of marketing and sales efforts and evaluating the success of campaigns. A low CPO indicates that the company is operating cost-effectively and achieving good sales results. A high CPO may indicate that adjustments in marketing strategy, sales processes, or targeting are needed to reduce the cost per order.
Example: CPO optimization
An e-commerce company wants to improve its CPO to increase profitability. The total cost of marketing and sales was 15,000 euros, generating 750 orders. The current CPO is:
CPO = 15,000 euros / 750 orders = 20 euros per order
The company decides to analyze its marketing campaigns and use more targeted advertising measures to better address the target group. In addition, processes in sales are optimized to increase the conversion rate. As a result, total costs drop to 12,000 euros and 800 orders are generated. The CPO improves to:
CPO = 12,000 euros / 800 orders = 15 euros per order
CPO optimization enabled the company to operate more efficiently and reduce cost per order, resulting in increased profitability.
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