Calculating your cost per sale

This isn’t a universal rule because every business is different and has different “acceptable costs” when it comes to leads. If you sell yachts you may be able to pay $100 for a lead. Just make sure to decide what your acceptable cost is for generating leads because if you don’t make that cost you know you need to refine your lead capture page.  This calculation the second in the series of four calculations you are going to learn.

This profit calculation that you are going to learn is how to calculate the cost per sale. This is where there rubber meets the road and you actually start seeing money come in from your ad so this can be exciting.

You need to make sure that you track your sales via an ad tracking program so you know what ad produced the sales. As for promoting affiliate programs and tracking profits, make sure you signup for a separate affiliate account for each ad. Some affiliate programs have great software that allow you to track individual ads but most do not so you will have to signup for multiple accounts so you can use each for a different ad.

This is where you find out the truth about your ad. Was your ad a raging success? Or what your ad less responsive than you expected and do you need to tweak your ad?

Whichever it is, you will find out what you need to do whether it be buy more ads in more papers or work on increasing the response of your current ad.

Much like the first calculations, this calculation is based on the cost of the ad to get your final calculation and is called

Cost Per Sale:

Total Cost Of Ad / Total Sales = Cost Per Sale

So if you paid $25 for your ad and you generated 5 sales from that ad this is what your calculation would look like:

$25 / 5 Sales = $5 Per Sale

This means that you paid $25 for your ad and generated 5 sales for a Cost Per Sale of $5.

This isn’t a bad deal at all. In most products or services you would advertise in the paper you are making more than $5 profit per sale so a cost of $5 to make a sale is easily accepted. This would be a success in most products and mean it’s time to place more ads!

Now it’s time to calculate profit per sale.

Let’s say that you have a product cost of $8 but you sell it for $29, which means that you have a profit of $21 per sale if it costs you nothing to make the sale. We know that with the calculation you did for “Cost Per Sale” on the newspaper ad that you placed that you made 5 sales at a cost of $5 per sale.

Now we are going to look at the formula for determining Profit Per Sale:

Profit Per Sale (Pre Ad) – Cost Per Sale = Profit Per Sale (Post Ad)

So if you have a Profit Per Sale of $21 before advertising costs are taken out and a Cost Per Sale of $5 for each sale your advertising generates your formula would look like this:

$21 Profit Per Sale (Pre-Ad) - $5 Cost Per Sale = $16 Profit Per Sale (Post Ad)

This means that you make $21 per sale before any advertising cost is incurred and after the $5 cost per sale from the newspaper ad is subtracted you are left with $16 net profit.

Tracking is the only way you have to determine if your advertising is working... so if you plan to advertise, please track your sales!