Media math/metrics calculation
For social media advertising, how do you calculate profit based on CPA and CR%? I'm trying to figure out the answer to the following:
If you want to make a 20% profit and were paid $5 per like with a 30% conversion rate, how much will you charge per click?
Are there formula for examples like these? Don't worry, this isn't my homework. I'm just trying to teach myself media metrics. Thanks!
Re: Media math/metrics calculation[ Edited ]
October 2013 - last edited October 2013
Hi LC, I'll try and get this right
The first step is to calculate your maximum Cost per Acquisition (CPA). If you're being paid $5 per conversion, and you want to make 20% profit, then your max CPA is $5 x 80%, or $4. So you want to pay no more than $4 for each conversion.
If you have a conversion rate of 30%, that means you're getting 30 conversions in every 100 clicks. You want your conversions to cost you no more than $4, so 30 conversions = $120. You'll get these over 100 clicks, so your max CPC needs to be $1.20.
So, in equation terms:
Max. CPA = $Income x (1 - profit) (where profit is a percentage expressed as a decimal, e.g. 20% = 0.2)
Max. CPC = Max. CPA x ConversionRate (again where CR is expressed as a decimal)
I should warn that Google's Policies don't permit the advertising of sites offering artificial inflation techniques (such as selling Likes or +1s) so if this question is anything other than hypothetical, please be sure you read and understand the Spam Techniques Policy here.
Hope this helps,