- Conversion Rate Optimization & Marketing Blog | FutureNow - http://www.grokdotcom.com -
Unlocking Key Performance Indicators: Order Acquisition Ratio
Posted By Ronald Patiro On October 30, 2007 @ 10:33 am In Articles,Conversion Rates,Key Performance Indicators,Metrics,Web Analytics | 16 Comments
Now that we’ve taken a look at Take Rate  and Bounce Rate , it’s time to look at another very important metric: Order Acquisition Ratio. Simply put, this performance indicator is used to measure the effectiveness of your marketing.You’ll need three numbers to calculate your order acquisition ratio:
1.) Visits to your site
2.) Number of orders placed
3.) Total marketing expenditures (which can include fixed costs associated with maintaining the site, but let’s focus primarily on marketing expenses)*
With these variables in mind, we will get two contributing metrics with which to calculate order acquisition ratio.
Cost per Visit (CPV) = Marketing Expense / Visits
CPV measures how much you’re paying to attract each single visit to your site.
Cost per Order (CPO) = Marketing Expense / Number of Orders.
CPO tells you how much you’re paying in terms of marketing budget to get a visitor to your site who converts and becomes a customer. This is directly related to your Conversion Rate.
Order acquisition ratio is then calculated by taking the CPO and dividing it by the CPV.
Order Acquisition Ratio = (Marketing Expense/Number of Orders) / (Marketing Expense/Visits)
It should be a positive number (if not, you’re in trouble). The lower the ratio, the better your marketing budget is being used. Some of the best ways to lower OAR include:
Order Acquisition Ratio is based on more traditional
bored boardroom metrics because it has a close relation to traditional financial statements. It has nothing to do with “Web 2.0,” “Web 1.0,” or Facebook. So, it’s great for sharing with your boss  since it’s directly tied to the bottom line. There’s even a cousin to this metric; a non-ratio, cold-hard-cash version of the Order Acquisition Ratio known as the Order Acquisition Gap. To calculate it, simply subtract the CPO from the CPV to get a negative number. This number shows how much money you waste in marketing dollars on visitors that don’t convert.
Order Acquisition Gap = CPV – CPO
There are other close relatives in this family of metrics, all of which focus on costs associated with generating new customers. To calculate these similar metrics, you’ll need to be able to track the same figures discussed above — except they need to be further segmented. Track the following numbers, and you’ll also benefit from a few additional metrics (listed in the bullet points below):
With these figures you can see the effectiveness of your new customer acquisition efforts:
[*Regardless of the expenses you include, it's crucial to set a standard and stick with it in order to accurately measure and account for the specific impact of such changes.]
[**When monitering your order acquisition ration, never tolerate any increase in the cost per visitor without an accompanying decrease in cost per order.]
Article printed from Conversion Rate Optimization & Marketing Blog | FutureNow: http://www.grokdotcom.com
URL to article: http://www.grokdotcom.com/2007/10/30/order-acquisition-ratio/
URLs in this post:
 Take Rate: http://www.grokdotcom.com/2007/10/24/take-rate/
 Bounce Rate: http://www.grokdotcom.com/2007/10/25/unlocking-key-performance-indictors-bounce-rate/
 clients: http://www.futurenowinc.com/clients.htm
 sharing with your boss: http://www.kaushik.net/avinash/2007/10/six-rules-for-creating-a-data-driven-boss.html
Copyright © 2009 FutureNow's GrokDotCom / Marketing Optimization Blog. All rights reserved.