Cost Per What?, Part 1

By Wendy Montes de Oca

You've created some ads and you've got them situated on search engines and relevant websites. All you have to do now is sit back and wait for customers to find you, right? Wrong! As soon as you've started marketing your product, website, or e-newsletter, you need to start measuring your results.

The best way to learn how effective your online marketing campaign is - and to figure out how to improve it - is to set up the proper marketing metrics before you begin. Here are two crucial performance indicators you must measure:

• CPA (Cost Per Acquisition) - the cost of your marketing effort (media buy) divided by the number of orders (sales) you get. 

This calculation will help you determine how much money it's costing you to acquire a customer. The lower the CPA, the better. If one effort gets a $25 CPA and another gets a $6 CPA, the second was more cost-effective. Keep in mind that the quantity and the cost of the efforts need to be the same to really compare effectiveness. The factor that will determine the better CPA will be the number of sales you get for each. 

• CPL (Cost Per Lead) - the cost of your marketing effort divided by the number of leads (e-mail addresses) you get. 

This calculation will help you determine how much money it's costing you to acquire the e-mail address of a prospective customer. So you're measuring name collection (not sales, as with CPA). Typically, you'll find this pricing model with lead-generation (name-collection) efforts or with co-registration marketing efforts (where your offer comes up on another site - on a thank-you or confirmation page - after a customer has bought that particular website's product). A good CPL range is $0.30 to $4. 

Once you have these numbers in hand and you've run a few tests, look for trends. You want to continue marketing where your CPA and CPL are lower, and reduce or discontinue marketing where your CPA and CPL are higher.

[Ed. Note: Wendy Montes de Oca has led the marketing efforts for several global leaders, including Chase Manhattan Bank, General Electric, ADP, and Salomon Smith Barney/CitiGroup, as well as consulted for entrepreneurial companies.]
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This article appears courtesy of Early to Rise [Issue #2168, 10-09-07], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.