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Margin math

Fourteen worked problems: CPC, RPC, revenue per visit, ROI, ROAS, break-even and what a clawback does to profit. All figures are illustrative. Keep a calculator handy. intermediate · 14 questions

Question 1 of 14Score 0

You spend $500 and receive 2,500 clicks to your lander. What is your CPC?

All questions with answers
  1. You spend $500 and receive 2,500 clicks to your lander. What is your CPC?
    Answer: $0.20. CPC is spend divided by clicks: $500 / 2,500 = $0.20. Dividing the other way gives 5, which is clicks per dollar, not a price.
  2. Those 2,500 visitors produce 1,000 clicks on sponsored results and $700 of feed revenue. What is the RPC, measured per monetised click?
    Answer: $0.70. RPC here is $700 / 1,000 monetised clicks = $0.70. $0.28 is the same revenue divided by all 2,500 visitors, a different metric: always check which clicks a report is counting.
  3. Same campaign: $700 of revenue from 2,500 visitors. What is the revenue per visit (RPV)?
    Answer: $0.28. RPV is $700 / 2,500 = $0.28. This is the number to hold against the $0.20 CPC, because both are measured per visitor bought. Comparing CPC with the $0.70 RPC would flatter the campaign badly.
  4. Same campaign: $500 spent, $700 earned. What is the ROI?
    Answer: 40%. ROI = profit / cost = ($700 - $500) / $500 = 40%. 140% is the ROAS and 28.6% is the profit margin (profit / revenue). All three describe the same $200.
  5. Same campaign: $500 spent, $700 earned. What is the ROAS?
    Answer: 140%. ROAS = revenue / spend = $700 / $500 = 1.4, or 140%. Remember that 100% ROAS is only break-even, so 140% means a 40% return, not 140% profit.
  6. On a lander, 40% of visitors end up clicking a sponsored result, and each of those clicks pays $0.50. What is the most you can pay per visitor and still break even?
    Answer: $0.20. Each visitor is worth 0.40 × $0.50 = $0.20, so the break-even point CPC is $0.20. Paying up to the $0.50 RPC is the trap: only four visitors in ten ever produce that click.
  7. A month shows $2,000 of estimated revenue on $1,600 of spend. The feed then claws back 15% of revenue. What is the final profit?
    Answer: $100. 15% of $2,000 is $300, so finalised revenue is $1,700 and profit is $1,700 - $1,600 = $100. The clawback comes off revenue, not off profit: taking 15% off the $400 profit gives the wrong answer of $340.
  8. In that month ($1,600 spent, $1,700 finalised), what is the ROI after the clawback?
    Answer: 6.25%. $100 / $1,600 = 6.25%. Before the clawback it looked like 25% ($400 / $1,600). A 15% cut in revenue removed three quarters of the profit, which is how thin margins behave.
  9. With $2,000 of estimated revenue and $1,600 of spend, what size of clawback wipes out the profit completely?
    Answer: 20%. Profit is $400, and $400 is 20% of the $2,000 revenue. So a 20% clawback leaves exactly break-even. 25% is the tempting answer because it is the ROI, but clawbacks are a share of revenue, not of spend.
  10. A feed provider receives $1.50 for a click and its contract passes 80% to the publisher. What does the publisher earn on that click?
    Answer: $1.20. 0.80 × $1.50 = $1.20. The $0.30 is what the provider keeps under the revenue share. $0.80 mistakes the percentage for a dollar amount.
  11. Revenue is $5,000 and traffic cost is $4,000. What is the profit margin?
    Answer: 20%. Profit margin = profit / revenue = $1,000 / $5,000 = 20%. 25% is the ROI (profit / cost). Margin is always the smaller of the two when a campaign is profitable, so know which one is being quoted.
  12. 10,000 visitors reach an article. Half click a related search term, and 30% of those go on to click a sponsored result paying $0.60. What is the revenue?
    Answer: $900. 10,000 × 50% Lander CTR = 5,000 searches; 5,000 × 30% Ad CTR = 1,500 paid clicks; 1,500 × $0.60 = $900. Skipping one of the two steps gives $3,000 or $1,800: both rates must be applied.
  13. Those 10,000 visitors cost $0.075 each and earned $900. What is the ROI?
    Answer: 20%. Cost is 10,000 × $0.075 = $750, profit is $900 - $750 = $150, and ROI is $150 / $750 = 20%. 16.7% is the margin on revenue ($150 / $900), the usual mix-up.
  14. You spend $1,000 a day for a 30-day month. The feed pays Net 30 after the month ends. Ignoring any revenue in between, roughly how much cash have you laid out by the time the first payment arrives?
    Answer: About $60,000. You fund the 30 days of the month, then about 30 more while waiting: roughly 60 days × $1,000 = $60,000. $30,000 forgets that spending carries on during the wait. This is the cash-flow float.