Money & metrics · also called margin, net margin
Profit margin
Profit margin is profit as a percentage of revenue: the share of each dollar earned that is left after costs.
Margin and ROI are often confused. ROI divides profit by cost. Margin divides profit by revenue. The same campaign gives two different percentages, and margin is always the smaller of the two when there is a profit.
In search arbitrage the main cost is traffic, so the first margin operators quote is the campaign margin: revenue minus ad spend, over revenue. Listed companies in the sector describe much the same thing when they report revenue less traffic acquisition costs (Revenue ex-TAC). Below that sit the other costs: tools, people, content, agency fees and finance charges. What remains is the true net margin.
Thin margins are normal here. That makes the business sensitive to small shocks: a few cents of CPC inflation, a modest clawback, or a dip in advertiser bids can consume the whole margin. Thin margins are survivable only with tight measurement, fast reactions and enough cash to ride out a bad month. Anyone promising fat, effortless margins is describing something other than this business.
An example
Say revenue is $270 and ad spend $200. Profit $70. ROI = 70 / 200 = 35%, but margin = 70 / 270 = 25.9%. After $30 of other costs, net profit is $40 and net margin 14.8%.
Related terms
ROI (return on investment)
ROI is profit expressed as a percentage of what was spent: revenue minus cost, divided by cost.
The spread (margin)
The spread is the gap between what an arbitrageur earns from a visitor and what that visitor cost to buy.
Net revenue (ex-TAC)
Net revenue is revenue left after subtracting the cost of buying the traffic that produced it, also called revenue ex-TAC.
Unit economics
Unit economics is the profit or loss on a single unit of the business, which in search arbitrage means one visitor or one click bought.
Break-even point
The break-even point is where revenue exactly equals cost, so a campaign makes neither profit nor loss.
Revenue ex-TAC
Revenue ex-TAC is revenue after subtracting traffic acquisition cost: what the business keeps once the traffic that produced the revenue has been paid for.