What is the Cost-Revenue Ratio (KUR)?
The name makes it quite clear, yet one should engage with the KUR in detail, as it is a good control instrument in online marketing. Often, especially online shops are managed based on the cost-revenue ratio. This can be quite sensible.
How is the cost-revenue ratio calculated in online marketing?
Let’s take the online marketing channel SEA as an example, as the CR can be very well illustrated here. In contrast to the “Cost per Order” (CPO), where only the media budget from SEA is calculated against the number of purchases, the CR also includes the agency fee. The formula for the CR is as follows:
Costs / Revenue = CR
An example for calculating the CR:
An online shop runs 100 ads with an average cost per click (CPC) of 1.50 euros. The conversion rate for the campaign is 5%. The average shopping cart is 50 euros. This means that 100 people click on each ad and 5 make a purchase.
Let’s calculate this:
- 100 (Clicks) * 1.50 Euro = 150 Euro (Cost per ad)
- 150 Euro (click costs) / 5 (buyers) = 30 Euro (CPO)
- 5 (purchases) * 50 Euro (shopping cart) = 250 Euro (gross revenue)
- With 100 ads, this results in
- 25,000 Euro gross revenue
- 15,000 Euro click costs
So in our example we calculate 15,000 / 25,000 = 60%. That would be quite high, but unfortunately, we are missing the agency costs. Let’s assume the agency requires two person-days per month for the 100 ads. This results in costs of 2,000 Euro. This gives us the following new value:
17,000 / 25,000 = 68%
This means: The SEA channel has a CR of 68%. Based on our experience, this would be extremely high, as there is hardly anything left for the online shop. The remaining 8,000 Euro is not the profit – for simplicity, this was just a calculation example. In most cases, one first calculates a cross-channel CR for a shop. This is usually significantly lower because channels like search engine optimization and email marketing have a low CR. When considering that direct entries, meaning people who enter the shop URL directly into the browser address bar, cost nothing, a manageable value will also emerge in the mixed calculation.
Cost-Revenue Ratio (KUR) Calculator
Here you can easily calculate the cost-revenue ratio. For this, enter the incurred click costs under “Costs” and the revenue generated under “Revenue”. The KUR will be calculated automatically.
What is an optimal cost-revenue ratio?
It cannot be said universally, as with all online marketing metrics. Here too, the range from 0 to 100 applies. Nevertheless, the question is absolutely valid, and therefore, a few aspects will be highlighted below that make classification easier. It was already mentioned in the previous section that the value should be assessed once per online marketing channel and then also across the board.
So determine your average margin and try to plan a manageable share as a marketing budget. Let’s assume your shop has an overall margin of 50%, then depending on the situation, a KUR (i.e., a marketing share) of 15 to 25 percent would be sustainable. However, the margin is usually not always the same. Accordingly, the KUR can also be calculated per product range, thus aligning your online marketing activities per product line. IT products (hardware) usually have a lower margin than leather goods, and package tours to the Mediterranean have different margins than individual trips in the DACH region. It can be quite sensible, for example, to reduce channels with a high KUR in one product range and ramp up in other areas.
It should also have become clear in the previous section that one can optimize the mixed calculation through channel expansion or restructuring. For example, since affiliate marketing has no click costs, but usually consists of a fixed percentage of the shopping cart, this channel can be attractive for some product ranges where the margin is lower. In the area of affiliate, one can also commission different product ranges differently. This is quite interesting from the KUR perspective.
Also SEO is a channel, which of course never runs for free, but usually generates extremely low KUR values after an initial setup period. SEA, on the other hand, can be noticeably adjusted with brand bids. Ultimately, however, you must decide for yourself which cost-revenue value you find acceptable and which fits into your calculation. Here too, one cannot expect a golden, set-in-stone rule.
What can be considered certain is that a KUR in ongoing business should always be optimized – and your agency or your team should always keep this in mind. We at Rheinwunder are happy to assist you! You can find the complete offer of Rheinwunder in the services.
Do you want to improve your cost-revenue ratio in e-commerce and need support? Contact us! If you want to learn more or have your team trained on this topic, then check out our analytics seminars.
