Cost of Sale, sometimes known as cost per conversion, is the amount an advertiser pays for each sale (i.e., conversion) generated by a particular ad or traffic source. It’s a way for businesses to measure the efficiency of their advertising spend, and to get an overview of what they’ve invested in an advertisement vs how much the return is. Another way to think of COS is that it’s a metric telling us what portion of their profit are costs for the ad.
Cost of Ad Spend / Sale/Conversion = Cost of Sale
$1,400 / $10,000 = 0.14 → 14%
14% of my profits/revenue are associated costs for advertising
Ideally you want your Cost of Sale as low as possible, and your sales revenue figure as high as possible. The higher your COS, the higher your ratio of ad-cost to sales revenue. This means a larger amount of cost for the ad is eating into your profits.
Cost of Sale metrics and targets vary by merchant. Some can have a higher COS than others, depending on merchant scale and budgets. But the end goal is to keep COS low and sales revenue high.
Having a higher COS than the advertiser's goal is what can set-off a price down. Note that there are other factors that influence pricing, including volume to the merchant and budgets, but in general, COS has the greatest influence on CPCs earned.