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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

And a side of revenue, please...Now that we’ve taken a look at Take Rate [1] and Bounce Rate [2], 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:

  • Boosting conversion! Increasing conversion lowers your CPO. Since conversion is the website’s primary goal, there are literally thousands of factors that affect conversion. (Conversion is so important to online health and wellness that improving is integral to everything we do for clients [3].)
  • Improving organic search rankings with relevant content. When you spend the time and money to create relevant content, the CPV and CPO should both drop — and you’ll further lower CPO by converting more visitors.
  • Targeting quality traffic sources. In your analytics, segment your site’s incoming traffic by source in order to identify where to put those marketing dollars. (Bounce Rate [2] is a great starting point for this.)
  • Optimizing PPC campaigns. With an effective PPC campaign, you’ll be able to convert more visitors. While this will increase your CPV, but when done correctly, it will yield a larger decrease in CPO by converting a higher percentage of traffic.**

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 [4] 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):

  1. New visitors to the site.
  2. Number of orders placed by new customers.
  3. Total new customer marketing expenditures.

With these figures you can see the effectiveness of your new customer acquisition efforts:

  • Customer Acquisition Cost = (New Customer Marketing Expense) / (Total New Customer Orders)
  • New Customer Cost per Visit = (New Customer Marketing Expense) / (New Customer Visits)
  • Customer Acquisition Gap = (New Customer Marketing Expense/New Customer Visits) - (New Customer Marketing Expense/Total New Customer Orders)
  • Customer Acquisition Ratio = (New Customer Marketing Expense/Total New Customer Orders) / (New Customer Marketing Expense/New Customer Visits)

[*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:

[1] Take Rate: http://www.grokdotcom.com/2007/10/24/take-rate/

[2] Bounce Rate: http://www.grokdotcom.com/2007/10/25/unlocking-key-performance-indictors-bounce-rate/

[3] clients: http://www.futurenowinc.com/clients.htm

[4] sharing with your boss: http://www.kaushik.net/avinash/2007/10/six-rules-for-creating-a-data-driven-boss.html

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