I get a lot of questions from beginner IMers (Internet Marketers) about how to calculate their KPI. So, let’s dive right in.
First, KPI is anything you want it to be. KPI can be used to measure Video Views, how much profit you are making, or the likelihood your dog really ate your homework. For IM purposes, KPI usually refers to CPA or Cost Per Acquisition. How much do you pay to acquire a paying customer? That’s KPI.
If you’re a beginner, how are you supposed to calculate KPI? You have no sales, no historical data. We do it through reverse-engineering. It’s easy…
Let’s say you have a product you want to sell via Facebook ads. You know your product sells for $297.00, but you don’t know your KPI or CPA. No worries.
Before you run ads on Facebook, you first must test your ads. We’ll use the test data to find your KPI. Let’s say you run ads for 1 week and the ads cost a total of $100.00. During that week, you sold 2 products at $297.00 each for a total of $594.00. Your profit for the week was $494.00 ($594-$100).
Your KPI is calculated by taking the cost of the ads and dividing it by the number of items sold. In this instance, your KPI is $50.00 ($100/2) to acquire a customer. Your product sells for $297, leaving you with a profit of $247. Nice return! Basically, you 5x’d your money. You put in $50.00 and got back $247.
We know if your KPI becomes $15, that’s even better.
But, how high can a KPI be before we kill the ad? A good rule of thumb is that your KPI can be 30% of the total product profit, or about $90, in this case. You’d still profit $207 per sale. You’d have a real business.
Experienced marketers will accept a lot less for short periods of time. I have been known to pay $250 just to make $297. I’m still $47 in the black. And, I just crushed my competition’s ego and desire to live.
I know what you’re thinking. That’s all good for digital products, but what about physical products?
The same logic applies, you just have to account for your product cost. If the product cost $50 and you sell it for $150, then your margins will be more restrictive. In this case, you make $100 gross profit. A KPI of $30 will yield $70 net profit. For me, that scenario is still viable.
Safe Max KPI=Total Product Profit * .30
No matter what you sell, or how you sell it, it’s a numbers game. Know your KPI. Stay below your KPI and you’ll always be safe. What’s your KPI?
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