Making Sense of Marketing Calculations

I recently received a tweet from one of my followers asking me what I meant by CPA (Cost Per Acquisition). It got me thinking… how many people actually understand marketing calculations and metrics? If you think that marketing is solely about being creative then you’re wrong because today it is also about using calculations and formulas to gain insights about costs and profits. So join me as I begin making sense of marketing calculations with a few of the most commonly used formulas.

What is CPM?

CPM Cost Per Mille is also called CPI (Cost per Impression). The ”M” is used here to indicate the Roman numeral for 1,000. Confused? Don’t be … CPM basically means the amount that I as an advertiser am prepared to pay for an estimated number of impressions. This means the number of times my ad is seen but not actually clicked upon. CPM = what you pay to have your ad appear a thousand times

How Do I Calculate CPM?

CPM= Advertisement cost × 1.000 ÷ Impressions

What Is CTR?

CTR stands for Click Through Rate which is an important element for measuring the effectiveness of an online campaign.  For example, on Google we may see a very high number of impressions (people who viewed the ad) but a low CTR (Click Through Rate). Similarly on Facebook advertising we could achieve a great CPC  (Cost Per Click) but a low CTR. Often this is because your banner ad does not match what you are offering or is not as appealing as originally thought by viewers.

How Do I Calculate CTR:

CTR= Number of Clicks ÷ Number of Impressions × 100

What is CPC?

CPC stands for Cost per Click and this is the amount that you are prepared to pay for every click on your advert or banner. Google uses this metric with online banner ads as a way of setting costs because you will be bidding against others if your keywords are popular.  Most marketers, including myself, prefer CPC to CPM as it is easier to track performance and effectiveness of online campaigns.

How Do I Calculate CPC?

CPC= Cost of ad÷ Number of clicks

What Is CR?

In digital marketing, CR (Conversion Rate) is a significant metric. You can be as creative as you like but if your ads don’t convert people then they are generally considered ineffective. Of course this is if your aim is to acquire clients and not to simple run a branding campaign. Conversion rate is a KPI (Key Performance Indictor) for e-newsletters, banners, landing pages and banners.

How Do I Calculate CR?

CR= Total number of conversions ÷ Total number of clicks × 10

What Is CPA?

CPA stands for Cost Per Action or Cost Per Acquisition. In sales terms we also use CPL (Cost Per Lead). This is basically the price of each customer in terms of advertising costs. So If I spend $100 and I get 10 customers then my CPA is $10 because it cost me $10 to get each client. The CPA will depend on the industry you are in with CPA for high value clients as high as one or two thousand. Generally speaking the lifetime value of a client should be 3 times the CPA to make it a viable acquisition. Therefore, if you spend $10 to get a client, he should spend at least $30 with your brand.

How Do I Calculate CPA

CPA=  Cost of Campaign ÷ Number of Acquisitions 

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