Want to achieve success with your home based business? Here are 14 words you must know if you want to achieve short-term and long-term home based business success.
I’m going to demystify this marketing mumbo jumbo and teach you the language of marketing.
When you enter a foreign country, there is a language that you must learn to speak so you can communicate effectively with the locals and navigate your way through the country.
The same applies when you enter a new industry, there is a language that you must learn to speak so you can communicate effectively and navigate your way through the industry.
I have compiled a list of the 14 most important marketing terms you need to know and understand in order for you to navigate your way to success with your home based business.
An advertisement also known as a creative is a notice or announcement in a public medium promoting a product or service.
There really isn’t an abbreviation for Conversion Rate but if there was one, we’re sure it would be “CR”.
A conversion rate can be measured in multiple ways, an example would be to calculate for lead conversion or product sales.
The formula for calculating a conversion rate is as follows:
Calculating conversion rate for Lead Generation:
Number of Leads Collected / Total Traffic to Site x 100 = Conversion Rate
Calculating conversion rate for Sales:
Number of Sales / Number of Visitors x 100 = Conversion Rate
Cost Per Acquisition (CPA)
A question that you must always ask yourself with your marketing is:
“How much do I have to spend to get a sale?”
Whether that’s selling a produce or service online of offline, generating a lead, a newsletter subscription form completion, or any other specific action taken on a website from the web visitors end, cost per acquisition (CPA) indicates how much ad spend it takes to get one of these conversions.
The formula for calculating a cost per acquisition is as follows:
Cost / Acquisition
Example: It costs you $100 to acquire 10 specific actions on your website = $10 per action
Cost Per Click (CPC)
The cost per click is the average amount that you’ve been charged for a click on your ad.
Average cost per click is calculated by dividing the total cost of your clicks by the total number of clicks.
The formula for calculating cost per click is as follows:
Cost / Click
Example: It costs you $50 for your Pay Per Click (PPC) campaign and you generated 15 clicks = $3.33 cost per click
Cost Per Lead (CPL)
At some point with your online business you’re going to ask yourself:
“What do we need to spend to get more leads?”
Knowing the cost per lead is perfect for helping you understand how to budget your advertising.
The formula for calculating cost per lead is as follows:
Ad Spend / New Orders = CPL
$1,500 Ad Spend / 15 Orders = $100 CPL
Example: We have a company that closed 75 deals for a total of $300,000 in sales over the last 12 months. We had 125 calls in for quotes, these are our leads. We spent $15,000 on advertising. Dividing $15,000 by 125 we get a cost of $120 per lead.
We now know the cost per lead for the company, how does this information help?
Imagine that we want to increase company sales for the next 12 months to $750,000, how can we achieve this?
We know that in the past 12 months the company closed 75 deals out of 125 leads. To close approximately 188 deals in the next 12 months, we’ll need 313 leads, an increase of 150.40%.
We need 313 leads x $120 cost per lead = $37,560. Our new advertising budget will then need to be $37,560 in order for us to achieve our goal of 188 leads i the next 12 months.
Cost Per Thousand Impressions (CPM)
CPM is abbreviated for Cost Per 1,000 Impressions (number of times an ad is displayed) where M is Roman Numeral for 1,000 hence CPM.
In general display advertising (e.g. banner advertising) is sold in CPM.
Example: If a vendor charged $15 CPM, this means your ad will be displayed 1,000 times for $15. If your budget is $1,500, your ad will be displayed 100,000 times ($15 x 100 = $1,500) (1,000 x 100 = 100,000).
Total Impressions = (Total Cost or Budget) * (1,000/CPM)
Cost Per Sale (CPS)
Cost Per Sale is how much it cost you to acquire a sale.
Example: You spent $250 on ads and generated 10 sales.
The formula for calculating cost per sale is as follows:
Ad Spend / Sales = CPS
$250 Ad Spend / 10 Sales = $25 Cost Per Sale
This means that you spent $250 on advertising, generated 10 sales from your advertising for a cost per sale of $25.
Cost Per Visitor (CPV)
Cost Per Visitor determines how much it costs to acquire a single visitor to a website.
In order to calculate cost per visitor, first, it is important to know other metrics such as cost of product/service and conversion rate.
Example: For every 100 visitors, 2 purchase a digital product for $97. Divide 2 sales by 100 visitors x 100 = 2% conversion rate.
The formula for calculating cost per visitor is as follows:
Total Dollars Generated / Visitors = CPV
$194 Generated / 100 Visitors = $1.94 CPV
Click Through Rate (CTR)
Click Through Rate is a way of measuring the success of an online advertising campaign as well as the effectiveness of an email campaign by the number of readers that clicked on a specific link within an email.
We’re sure that you’ve heard the saying before: “The money is in the list!”
The formula for calculating click through rate is as follows:
Number of Clicks / Number of Impressions/Messages Opened x 100 = Click Through Rate
1,500 Clicks / 13,000 Opens x 100 = 11.54% Click Through Rate
The average click through rate varies from industry to industry.
It is a wise decision to find the industry standard for click through rate and benchmark that figure against your own so you know where you stand with your marketing campaign.
Earnings Per Click (EPC)
Earnings Per Click is the single most important metric that potential affiliate partners will want to know to help them decide whether promoting your product/service will be a profitable decision or not.
This metric alone lets your potential affiliate partners know how well your product is performing and what kind of earning potential they can expect if they promote for you.
In order to calculate earnings per click, first, it is important to know other metrics such as the following:
- The price of your product.
- The commission an affiliate earns each time the affiliate sells your product.
- The NET number of sales an affiliate has made.
- The total number of times the affiliates unique affiliate link has been clicked (most affiliate software programs will automatically track click through rates on affiliate links that have been clicked).
The formula for calculating earnings per click is as follows:
NET Commissions Earned (after refunds) / Total Number of Clicks = Earnings Per Click (EPC)
Here’s how it works out using the example above:
- Price of product: $500
- Affiliate commission earned for each sale: $250
- NET number of sales (after refunds): 10
- Total number of clicks on affiliate link: 1,000
NET Commissions Earned ($250 x 10 = $2,500) / Total Number of Clicks (1,000) = $2.50 EPC
In this example, an EPC of $2.50 is A+.
The higher the EPC the more money an affiliate will earn for each click sent.
Return on Ad Spend (ROAS)
Just like you would calculate your Return on Investment (ROI), the same approach should be taken in order to calculate your Return on Ad Spend (ROAS).
The ROAS is a metric that will gauge whether a campaign is worth continuing or needs modification.
If you have an ROAS of 100%, this means you broke even. An ROAS below 100% means you turned a loss whilst an ROAS above 100% means you turned a profit.
The formula for calculating return on ad spend is as follows:
Revenue / Ad Spend = Return on Ad Spend (ROAS)
$20,000 Revenue / $15,000 Ad Spend = 1.33% or 133% ROAS
The amount over 100 percent is your profit. In this example, the profit is 33 percent.
Return on Investment (ROI)
Return on Investment is a metric used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.
When it comes to calculating the ROI for your marketing, this can be tricky because there are many variables to consider as well as determining what constitutes your “return”, and what is your true investment.
Example, different marketers might consider the following for return:
- Total revenue generated for a campaign
- Gross profit, or a gross profit estimate, which is revenue minus the cost of goods to produce/deliver a product or service.
- NET profit, which is gross profit minus expenses.
Calculating a basic return on investment formula is as follows:
Gross Profit – Marketing Investments
Unique Selling Proposition
The unique selling proposition (USP) is a marketing concept first proposed as a theory to explain a pattern in successful advertising campaigns of the early 1940s.
The USP states that such campaigns made unique propositions to the customer that convinced them to switch brands.
To explain this concept in layman terms, he unique selling proposition makes or breaks your product/service, you need to ask yourself the following questions:
“What does my product/service offer that my competitors do not?”
“What uniqueness does my product/service bring to the marketplace?”
Your unique selling proposition must be strong enough to move the masses.
Value Per Visitor
The value per visitor is a metric that determines how much a visitor is worth.
First of all, we are going to show you how to calculate the value per customer since it’s easier and then from there show you how to then calculate the value per visitor.
Example: Suppose you have a digital produce that you sell for $47, since it’s a digital product, $47 is all NET profit. The value per customer in this instance is $47. Suppose you have an additional offer that costs $127 after a customer purchases your initial offer for $47.
And here are the conversion numbers you tracked over the past month:
Out of every 100 people who visited the sales page, 2 end up purchasing the $47 offer.
Out of every 100 people who purchase the $47 offer, 9 end up also purchasing the $127 additional offer.
The math for calculating the value per customer is this, if you sell a single product, then the value per customer is the price of that offer.
If you sell more than one offer however, you need to factor the percentage of people who buy each offer.
The formula for calculating value per visitor is as follows:
Cost of Front-End + Number of Customers for Additional Offer x Price of Additional Offer = Average Value per Customer
$47 + 0.09 * $127 = $58.43
In this example, for every 100 visitors, we have a profit of 2 * $58.43 = $116.86. Divide $116.86 by 100 to get the value per visitor:
$116.86 / 100 = $1.16
With this number at hand you’ll be in a much better position to make effective marketing decisions.
Calculating the value per customer and per visitor will help you define your marketing strategies.
These are what I believe to be the 14 most important marketing terms that anyone just starting out online must and should learn and understand before undergoing their first online business venture.
Just like learning a foreign language, learning the language of marketing cannot be learned overnight.
Bookmark this page and refer back to this post when you need to when time comes to calculate any of the 14 above metrics for your online business.