Business & finance
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.
Before asking whether a business makes money overall, ask whether it makes money on one unit. In search arbitrage the unit is one visitor.
The cost side is simple: the CPC paid to the traffic source. The revenue side is a chain. Of the visitors who land, a share click a related search (Lander CTR). Of those, a share click an ad (Ad CTR). Each ad click earns an RPC. Multiply them and you get revenue per visitor (RPV). If RPV is higher than CPC, each visitor is profitable.
Then come the adjustments that beginners forget: invalid clicks removed between estimated revenue and finalised revenue, tracker and tool fees, staff, and the cost of money tied up while waiting to be paid (cash-flow float).
Good unit economics is necessary but not sufficient. A campaign can be profitable per visitor and still sink the company if it cannot be scaled, if payment arrives too late, or if the feed is lost.
An example
Illustrative: CPC $0.10. Lander CTR 40%, ad CTR 50%, RPC $0.70. RPV = 0.40 × 0.50 × $0.70 = $0.14. Gross profit per visitor = $0.04, a 40% return on spend. If 10% of revenue is later deducted, RPV falls to $0.126 and the return to 26%.
Related terms
RPV (revenue per visit)
RPV is total revenue divided by the number of visits to the landing page, showing what one arriving visitor is worth on average.
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.
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.
The spread (margin)
The spread is the gap between what an arbitrageur earns from a visitor and what that visitor cost to buy.
Break-even point
The break-even point is where revenue exactly equals cost, so a campaign makes neither profit nor loss.
ROI (return on investment)
ROI is profit expressed as a percentage of what was spent: revenue minus cost, divided by cost.