The Economics of Online Marketing

The relationship between what you can pay (max cost per click, or CPC), how your Web site performs (sales per click, or SPC), and your target efficiency (A/S) is simple math:

max CPC = A/S x SPC

For example, consider a retailer seeking a 35 percent ad-to-sales efficiency with a Web site that sells $120,000 online to every 100,000 qualified visitors. After tweaking Web demand sales to account for frauds, cancels and contact center spillover, she estimates her adjusted SPC to be $1.30. To hit her efficiency target of 35 percent, she must pay on average no more than 45 cents per click for those 100,000 visits.