Basics · also called margin, arbitrage margin
The spread (margin)
The spread is the gap between what an arbitrageur earns from a visitor and what that visitor cost to buy.
The spread is the whole point of search arbitrage. On one side is the price paid for a visitor, usually the CPC charged by the traffic source. On the other is what that visitor earns, measured as RPV (revenue per visit) or RPC (revenue per click). Subtract one from the other and you have the spread.
Spreads are usually small in absolute terms, often a few cents per visitor, so the business only makes sense at volume. They are also unstable. Ad prices rise when competitors copy a winning campaign, feed payouts fall when traffic converts poorly for advertisers (smart pricing), and both swing with seasonality.
A healthy-looking spread on the dashboard is not yet profit. Revenue shown during the day is estimated revenue, which may be reduced when it is finalised. Tools, staff, the feed provider's share and the cost of waiting weeks to be paid (net payment terms) all come out of it. Experienced operators therefore track spread as a percentage (ROI) and insist on a safety cushion.
An example
Say a visitor costs $0.12 and earns $0.15. The spread is $0.03, a 25% return on spend. On 50,000 visitors a day that is $1,500 a day; if revenue is later cut by 10%, the earning falls to $0.135 and the spread halves to $0.015.
Related terms
RPC (revenue per click)
RPC is the average revenue earned per monetised (paid ad) click: the "sell" price in search arbitrage. Convert it to revenue per visitor (RPV) before comparing it with CPC.
CPC (cost per click)
CPC is the price paid for one click on an ad; in search arbitrage it is what the arbitrageur pays a traffic source for each visitor.
ROI (return on investment)
ROI is profit expressed as a percentage of what was spent: revenue minus cost, divided by cost.
Profit margin
Profit margin is profit as a percentage of revenue: the share of each dollar earned that is left after costs.
Break-even point
The break-even point is where revenue exactly equals cost, so a campaign makes neither profit nor loss.
Clawback (revenue deduction)
A clawback is revenue a feed removes from a publisher's earnings after the fact, usually because clicks were judged invalid and the advertiser was refunded.