Do you know what CPO(cost per order) of your ecommerce store is? If you are not familiar with CPO, it is time to get to know what CPO is, why you should use it and how you can make it as low as possible.
CPO is one ecommerce metric to measure the spending on every sale your online store makes, through which you can know the profit of every order.
The main reason why you should know your store’s CPO is that you are clear about whether the expenditure on acquiring customers is lower than their spending in your store or not. In other words, you can see the profit of each order when you take all the costs into consideration.
Then what costs should you contain during the calculation of CPO?
Typically, there are several costs related to your CPO, ranging from total cost of the products sold to all marketing fees, including warehousing and shipping fees, direct and indirect labor costs. Moreover, there may be other additional spending on your online store, and make sure to count it.
The formula of calculating the CPO is as follows.
CPO=total costs/total number of orders
However, the number of CPO alone is not enough to know the profit of each order. So you should know the average order value(AOV) over the same period of time.
AOV=total revenue/total number of orders
Then you can know the average profit you have made on every order during a spell of time by deducting the CPO from the AOV.
In order to boost the profit of your ecommerce store, you can reduce the CPO when the AOV stays the same. What can you do to decrease the CPO?
First, you can list all kinds of costs and their respective percentage. Then you can try your best to see whether every kind of costs can be lowered.
Warehousing and shipping fees
Shipping fees can be various due to the different logistics providers. Even if your customers pay shippimg fees, they may not place an order if the shipping fee is high, which leads to a loss of your sales.
When your order volume is high enough, you can negotiate lower shipping rate with your logistics providers. And you don’t need to own a warehouse to start your online business, which can save a lot of money. You can use professional order fulfillment services to solve your warehousing, inventory management and shipping problems easily and cost-effective.
Cost of products sold
The suppliers you are cooperating with influence the costs of your products. It takes time and efforts to find reliable suppliers. And when your order from suppliers is big enough, you may enjoy a lower price. In addition, you can choose products with high gross margin to sell. Then you can make much more profit.
You pay for advertising and other marketing ways to drive more traffic to your store, including Google ads, Facebook ads. You don’t need to do marketing for all of them. You first can test the advertising effects to see which is more effective. Then you adopt the one which is more effective. And you can also use free marketing method to acquire potential customers.
In conclusion, you can reduce the CPO of your online store to make more profit.