In order to measure how your business’s marketing campaigns are performing, it’s important to understand the whole series online marketing metrics like CPL and CPA.
1. CPC: This usually stands for Cost per Click, which is probably the most popular advertising model online where an advertiser only pays when their ad is actually clicked on. With search advertising the actual cost per click is usually based on an auction system. Conversely some display advertising has cost per clicks that are a flat rate.
To complicate matters slightly, CPC sometimes stands for Cost per Call – meaning the amount an advertiser has to pay for every call generated to their business.
2. CPM: This often confusing abbreviation stands for Cost per Thousand. In this case, the “M” is actually the Roman numeral for thousand. Cost per Thousand is an advertising model where advertisers pay per thousand of impressions and is often used with display (banner) advertising.
3. CPL: Cost per Lead expresses the cost of generating a lead for your business through advertising. The term “lead” is often used somewhat loosely and can mean different things to different businesses depending on what their marketing strategy and goals look like. For one business “a lead” could be a person signing up for an email newsletter whereas for another business “a lead” could be a prospect emailing for a free consultation or actually calling into the business for more information.
Because leads are often (no pun intended) leading indicators to new customers and more money in your pocket, Cost per Lead is an important measure of how your advertising is paying off.
It is easy to Calculate your CPL:
CPL = Total number of leads generated/ Total cost of advertising to generate those leads
4. CPA: Cost per Acquisition represents the amount of total cost associated with actually getting a new customer. This metric is extremely important in that whereas “leads” only represent an interested prospect, “acquisitions” represent paying customers.
CPA = Total number of new customers/ Total cost of advertising to generate those new customers
The one potential problem with using CPA as your primary metric for your advertising arises when you have long sales cycles such that you don’t know your real CPA until months later (making it very difficult to use CPA in order to optimize your advertising in real time). In such cases, advertisers often defer to their CPL.
In addition, some advertising programs a business can participate in are based on a “CPA model” – meaning that the advertiser only pays when they actually acquire a new customer. Although rare, these types of advertising arrangements are advantageous in that they nearly eliminate all potential risk for the advertiser of paying for ads that don’t generate results.
5. ROI: Your Return on Investment is the final, end-all-be-all, rubber-meets-the-road metric that represents the rate at which your advertising is paying off – not just in terms of new customers, but in terms of actual revenue.
You can calculate as follows:
ROI = (Revenue generated from advertising – Cost of advertising)/ Cost of advertising
For instance, let’s say you spent $2,000 in search advertising from which you ultimately derived $10,000 in revenue. Your ROI would be: ($10,000 - $2,000) / $2,000 or $8000/$2000 or 400%
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