The Measure of Us: Cost Per Order
This is my second installment in a series I’m titling “The Measurement of Us” – measuring the impact of the time and attention we pay to social media in our lives, companies, and communities. First I’ll take a look at the easiest things to measure – financial ROI.
Of course you can measure the ROI of any relationship. And you don’t have to change the acronym to stand for some weak sounding thing like “return on influence” or morph it into “return on relationships.” You simply measure the costs in, the return out, and do some algebra 101 with a discount factor to know if you’re winning or losing on your social media marketing investment, or if you should marry your future spouse.
Which gets to my main point – measuring ROI in transactional costs is possible, but does not tell you the whole story of value that you get from a relationship.
Relationships Measured in Cost Per Order
In starting this investigation, I have the luxury of looking at the many ways the 60+ clients at my company Drillteam and our parent and sister companies Powered,crayon, and StepChange. Most new clients show up with no measurement plans in place, and no effective way to track ROI. A few, however, have shared with us a metric that is popular in web 1.0 digital media marketing – using a last click method, or attribution model, to determine the cost per order.
What it is: A familiar metric for search engine and digital marketers, cost per order determines the cost of ads that lead to a completed sale.
There are two basic forms – last click, and cost per attribution.
Last click looks at the last site clicked that led to a sale, and assumes that the cost of the ad placed is the cost per order. Last click is worth looking at, however, because your customer may not have clicked an ad on a social net, they may have seen something in the friend’s or followers info stream, or may have been on a web 2.0 site that has no ad placement, like a user-generated community forum.
Cost per attribution was invented to overcome the inherent flaw in measuring the last ad clicked, whether that ad was a display ad, a social ad, or a keyword buy. Cost attribution technology has been developed to track beyond the last ad clicked in order to assign a percentage to the “team of ads” that results in a conversion. Innovative ad tracking providers have been testing methods that track not just ads, but potentially URLs and other forms of social media. ROI data then can show up as a cost per attribution (what did each ad cost, in relationship to the final action) and therefore a cost per order for each conversion.
Note you can use both of these methods to track cost per lead, or cost per action, not just what goes in the shopping cart, but I have only seen it used in companies with a major ecommerce offer.
Who uses it: Digitally-strong marketers, particularly those that invest heavily in SEO, digital agencies, SEO agencies, SEO-focused social media marketers.
Benefits: I’ve seen the cost per order model lately used as a way to start measuring social media ads in side-by-side comparison with other forms of digital marketing – particularly display and search. Essentially, they are measuring the efforts of 1.0 web marketing vs. 2.0. It also quickly gives more credibility to social marketing, which appears to be able to be tracked and measured with the same rigor as the rest of digital.
Challenges: Cost per order sees people as online shopping carts, and not much else. What’s missing? Everything outside the commerce path – people who promote the company in their own social networks, both prompted and unprompted by the company, customers who are loyal in offline purchase paths, and the overall sentiment in content that shows up in search queries that positively or negatively impacts the brand.
When to Recommend: Use this method for companies that have a strong ecommerce is a primary business driver, and to compare ads placed on social networks like Facebook to ads on web 1.0 sites. But make sure you have more holistic measurement plan in place so that you can understand why cost per order numbers are increasing or decreasing. Stay tuned for more ways to measure in future posts.