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 management tool in online marketing. Often, especially online shops are managed according to the cost-revenue ratio. This can certainly be sensible.
How is the Cost-Revenue Ratio calculated in Online Marketing?
Taking the Online Marketing channel SEA as an example, the CRR can be clearly illustrated here. In contrast to the ‘Cost per Order‘ (CPO), where only the media budget from SEA is compared to the number of purchases, the CRR also includes the agency fee. The formula for the CRR is as follows:
Costs / Revenue = CRR
An example for calculating the CRR:
An online shop runs 100 ads with an average cost per click (CPC) of €1.50. The conversion rate for the campaign is 5%. The average shopping basket is €50. 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 click per ad)
- 150 euros (click costs) / 5 (buyers) = 30 euros (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
In our example, we calculate 15,000 / 25,000 = 60%. This would be quite high, but unfortunately, we are missing the agency costs. Let us assume that the agency requires two person-days per month for the 100 ads. This results in costs amounting to 2,000 Euro. This gives us the following new value:
17,000 / 25,000 = 68%
This means: The SEA channel has a KUR of 68%. Based on our experience, this is extremely high, as there is hardly anything left for the online shop. The remaining 8,000 Euro is not the profit – for simplicity’s sake, this was just a calculation example. In most cases, one first calculates a cross-channel KUR for a shop. This is usually significantly lower because channels such as search engine optimisation and email marketing have a low KUR. 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 (CRR) 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 CRR will be calculated automatically.
What is an optimal cost-revenue ratio?
It is – as with all online marketing metrics – not something that can be universally stated. Here too, the range from 0 to 100 applies. Nevertheless, the question is absolutely valid, and therefore, a few aspects will be highlighted below to make classification easier. Firstly, it has already been mentioned in the previous section that the value should be assessed once per online marketing channel and then also in an overarching manner.
So, determine your average margin and try to plan a manageable portion as your marketing budget. Let us assume your shop has an overall margin of 50%, then a KUR (i.e., a marketing share) of 15 to 25 per cent would be sustainable. However, the margin is not always the same. Accordingly, one can also calculate the KUR per product range and thus align their online marketing activities per product line. IT products (hardware) usually have a lower margin than leather goods, and package holidays to the Mediterranean have different margins compared to individual trips within the DACH region. It can be quite sensible, for example, to scale back channels with a high KUR in one product range while ramping up in other areas.
It should also have become clear in the previous section that one can optimise the mixed calculation through channel expansion or restructuring. For example, since affiliate marketing has no click costs, but usually involves 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 provision 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 calculations. Here too, one cannot expect a golden, set-in-stone rule.
What can be considered certain is that a KUR in ongoing business is always to be optimised – 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 range of services from Rheinwunder at 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 take a look at our analytics seminars.
