Order Generation Costs

Posted in Marketing and Strategy Terms, Total Reads: 1608

Definition: Order Generation Costs

These are the total costs to be incurred by the company on advertising, sales promotions and sales force activities to generate an order from the customer.

Order generation costs consist of two parts: -

a. Acquiring the customer:

This component consists of the total marketing and sales costs spent by the company in attracting new customers.

Marketing costs include:

i. Advertising on TV, print media

ii. On ground activations if any

iii. Tie-ups or partnerships

Sales costs include:

i. Salaries of sales persons

ii. Travelling expenses of sales staff

For example, if Flipkart spends Rs. 100000 on marketing and sales, thereby generating 1000 new customers who place orders on the site, the cost for acquiring a new customer would be Rs. 100.


b. Operational cost of recording the order

This component includes the cost of operational systems(IT or paper based) which store the order and the costs of utilities consumed in warehouse and distribution centres and the cost of telecommunication used in dispatching the order.


Hence, this concludes the definition of Order Generation Costs along with its overview.

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