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Marketing Math Worksheet – Lesson 4

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Head feeling something like this?

Now that we have EPC and CPC figured out we can go back to our first equation.

CPC < EPC

And the more advanced version with the moving parts inside of what makes those up.

CPM cost  / ( CTR (decimal) * 1000 ) < Conversion Rate * CPA

This is the equation that all marketing is based on for media buying of pretty much any sort. And it’s a lot of fun to play with. I will attach a excel spreadsheet with this equation built in it so you can see what adjusting ctr’s does. You can see what you’d need an offer to convert at if you know a traffic cost. You’d know what you could pay CPM at a new traffic source if you knew your typical CTR and Conversion Rate.

Lets try a few.

CPM cost  / ( CTR (decimal) * 1000 ) < Conversion Rate * CPA

Profitable? Yes/No

$2 / (0.2% * 1000) < 20% * $10 $1.00 < $2.00, Yes
$1.20 / (0.45% * 1000) < 4% * $5 $0.26 <  $0.20, No
$3.40 / (0.11% * 1000) < 32% * $47 $3.09 < $15.04, No
$1.33 / (0.05% * 1000) < 5% * $12 $0.67 < $0.60, No
$5.80 / (2.3% * 1000) < 2% * $38 $0.25 < $0.76, No

 

How did we do are some of our campaigns making money?

Now play with the CTR’s and see what the CTR of the ad would need to be on the ones that aren’t profitable in order to make them profitable. We’ll assume to keep this simple that the conversion rate won’t be affected by the ad changes, which just isn’t real world but for our simple math it works.

To do this we’ll set the 2 sides equal so that would be break even on the campaign. We’re going to make CTR = X which is just a variable that we want to know the value of. Then we’ll divide both sides by CPM cost so it becomes 1 on the left which is meaningless in the equation because anything times 1 is just itself. Then we need to multiply both sides by 1000 which again will make the left side of the equation X * 1 / 1 which is just X. Now we can calculate out what X is. Here’s the equation below.

X = Conversion Rate * CPA * 1000 / CPM cost

One Comment

  1. These lessons were really helpful! I haven’t seen this information explained this well. Appreciate you explaining in great detail.

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