The allowable marginal cost of the targeted action of the visitor on the site.
Website performance is measured not by the site’s position in the TOP, and not by the number of visitors, although most often site owners track and pay for these metrics. Website performance is measured by the number of calls, orders, requests from the site – the number of targeted actions performed by visitors on the site.
Targeted actions of the visitor on the site
Now popular is a model of payment for promotion services, such as payment for a targeted action committed by a visitor on a site.
The maximum allowable cost of the target action (appeal, order, application) of the visitor on the site (CPL / CPO) is the cost that the company can afford in the current or predicted situation.
The payment model for targeted actions is attractive, because payment is made after the fact and at first glance it has fewer risks. But it is worth noting two main risks:
In an effort to get more calls, there is a chance to pay more than profitable for the business;
The risk is not to get the right amount of calls, because the business has offered too low a price per action.
The main question arises: “At what cost of the targeted action will such a model be profitable?”
To do this, you need to determine the CPL / CPO and compare these indicators with the offers on the market.
What determines the maximum allowable cost of the target action?
Conversion of hits from the site to transactions
Average transaction check
% of the marginal profit that the business receives from each transaction (excluding the cost of website promotion)
Part of the profit that a business is willing to pay to complete a transaction. What part of the marginal profit is ready to spend for the transaction? 25%? fifty%? one hundred%? Or 150%? It depends on the likelihood of repeated sales to an attracted customer and competition in the industry in which the business operates.
Customer lifetime. Frequency of the customer making purchases, placing orders. If the customer contacts the company after the first order / purchase, the marginal cost of action may be higher than the% of the marginal profit from the transaction.
We can conclude that the maximum allowable cost is not a universal indicator and it is different for each business.
Examples of calculating the maximum allowable cost of the target action of the visitor on the site for different industries
Consider the definition of the allowable marginal cost of action on the examples of two very different businesses – auto center and flower delivery service.
Autocenter “AvtoLider” using the landing page collects contact details for the application for a test drive. The number of requests per month is 16. Of the 16 people who signed up for a test drive, only one person becomes a car buyer. Thus, the conversion of calls to transactions is – 6.25%. The average bill is 700,000 rubles. Assume that the% margin profit at a car dealership is 25%.
We calculate the maximum allowable cost of the target action on the site.
The average bill is 700,000 rubles
Marginal profit 25% or 175 000 rubles
Allowable transaction costs 20% of the margin or 35,000 rubles
Conversion of calls to transactions 6.25%
CPL / CPO = 35,000 x 6.25% = 2187 rubles for the target action
Speaking about the cost-effectiveness of attracting one customer, it is worth remembering the frequency of customer purchases. In the case of a car dealership, the frequency of buying a new car is on average once every five years. Therefore, there was no point in agreeing to the cost of the visitor’s actions on the site, which is more than the maximum allowable.
Flower delivery service “Dandelion”.
The target action for flower delivery will be an order with filling out the contact details form.
Average bill 1,500 rubles
Margin profit of 30% or 500 rubles
Allowable expenses for attracting the first transaction of the client 100% of the margin or 500 rubles. Since contacting the flower delivery service once with good service and reasonable prices, it is highly likely to become a regular customer.
Conversion of calls to transactions 90%
CPL / CPO = 500 x 90% = 450 rubles for the target action
We examined how you can calculate the maximum allowable cost of the visitor’s actions on the site. But in practice, calculating this value can be much more complicated. Not every business knows the conversion of circulation into transactions, monitors the frequency of frequent customers in the company, the site may not be configured goals.
This complicates the determination of the value of the action or makes it almost impossible.
But another difficulty arises when promoting with payment for targeted actions – the discrepancy between the cost that the business is willing to pay and the rate that the promotion companies offer. The reason for this may be high competition in the industry in which the business operates, low demand on the Internet for the proposed product, service. Then you need to either raise the rate or choose another payment model for website promotion – promotion for a monthly fee.
Do you know the conversion of calls to transactions and want to pay only for targeted actions?
Use the calculator and calculate the maximum allowable cost of the target visitor’s action for your site.