Net income – net income. In some industries it may be per order. For those who calculate LTV, net income may be calculated just per client.
CR1 – Conversion of landing. How effectively your landing converts visitors into potential clients.
CR2 – Conversion of sales department. How effectively your sales department converts leads into orders. If it is an internet shop, you can calculate CR2 for your shopping cart.
% – Percentage of net income that you are ready to pay per acquisition (for attracting a new customer).
Variance – a measure of dispersion in price per click. The cost per click varies. For new companies let it be 1.5.
How much are you ready to pay per click?
CPC = Net income * % * CR1 * CR2 * Variance
$5000 * 20 % * 5 % * 10 % * 1.5 = $7.5
How much are you ready to pay per lead?
CPC = Desirable CPL * CR1* Variance
$100 * 5 % * 1.5 = $7.5