What does PNO mean and why is it crucial?
Cost-of-revenue share, aka PNO, is how much percent of the revenue we got from advertising that we paid for. The higher the PNO, the greater the costs associated with the sale. In general, the lower the PNO, the better. PNO shows us the cost of advertising and whether this investment has paid off. E-shops will use this metric the most because they can measure the value of conversions in money.
You can meet the PNO metric in the interface of Sklik, Heureky, zboží.cz and others. In Google Ads, the inverse value of ROAS (Return on Ad Spend) is used. In Google Ads, you can add this metric by creating your own formula: (Cost / Conversion Value).
How to calculate PNO
PNO is calculated using a simple formula:
Ratio of costs to turnover = costs / turnover *100 (%)
Example: We spent CZK 1,000 on advertising and it brought us CZK 5,000 in sales, PNO will be 1,000 / 5,000 *100 = 20%
PNO is a bit misleading because it doesn't include all the costs associated with advertising. It does not consider the costs of creative, campaign management, claims, discounts, packaging, warehouses and other factors.
What is the ideal PNO?
There is no correct universal value of PNO, everything depends on the amount margin of individual e-shops. While a high-margin business may be happy with a 20% PNO, for another company it may mean losses. Sometimes marketers get too obsessed with the short-term results of PNO and as a result, ignore the long-term effectiveness. With a very low value of PNO, turnovers can also decrease, so the lowest possible PNO is not the most desirable. It is therefore simply true that advertising costs must not bring long-term losses.
In practice, PNO is mainly used to evaluate the success of campaigns and helps with budget allocation across campaigns.
What to watch out for
Values in Sklik and Analytics
Sklik and Google Analytics have different attribution models, so the conversion values are different. Click always has higher conversion values and thus distorted PNO. In Sklik, the conversion value is attributed to the last click on the ad, while in Google Analytics to the last indirect click.
In the case of Sklik, be aware that compared to Google Analytics, the conversion values in the Sklik interface are always higher and PNO may be distorted.
We must not count on the fact that we will measure everything to 100%. For an accurate value, we would have to include all costs associated with sales + margins at the level of individual products. For this reason, the PNO value is taken more as an indicative number.
Measurement with VAT/without VAT
Check that you are evaluating all data at the same rate. Either calculate everything with or without VAT.