The funnel in one table
Every ad campaign moves people through four counts: impressions, clicks, conversions and revenue. Each metric is either a cost per step or a rate between two steps. Once you see that, the names stop being a vocabulary test.
| Metric | Stands for | Formula | What it tells you |
|---|---|---|---|
| CPM | Cost per mille (thousand impressions) | Spend ÷ Impressions × 1,000 | What reach costs |
| CTR | Click-through rate | Clicks ÷ Impressions | How well the ad earns a click |
| CPC | Cost per click | Spend ÷ Clicks | What a visit costs |
| CVR | Conversion rate | Conversions ÷ Clicks | How well the page turns visits into actions |
| CPA | Cost per acquisition (cost per conversion) | Spend ÷ Conversions | What one action costs |
| ROAS | Return on ad spend | Revenue from ads ÷ Spend | Revenue per dollar of ads |
| CAC | Customer acquisition cost | All acquisition costs ÷ New customers | What a new customer costs, all in |
| LTV | Customer lifetime value | Profit per order × Orders per year × Years | What a customer is worth over time |
Each metric, with the definition Google Ads uses
CPM: cost per thousand impressions
Spend divided by impressions, times 1,000. Google Ads Help describes CPM bidding as paying per one thousand views (impressions) on the Display Network, and viewable CPM (vCPM) as paying only when the ad can be seen. CPM is the price of reach: it says nothing about whether anyone cared. The CPM calculator solves for any of spend, impressions and CPM.
CTR: click-through rate
Clicks divided by impressions. Google Ads Help calls it a ratio showing how often people who see your ad end up clicking it, and gives the example of 5 clicks on 100 impressions, a 5% CTR. It measures the ad itself: the headline, the image, the offer and how well they match the audience. The CTR calculator also works backwards, from a target CTR to the clicks you should expect.
CPC: cost per click
Spend divided by clicks. In Google Ads the amount you are actually charged for a click is the actual CPC, which Help says is often less than your maximum bid. CPC is what a visitor costs, and it is where CPM and CTR meet: a cheap CPM with a poor CTR can give an expensive CPC. The CPC calculator converts between the three.
CVR: conversion rate
Conversions divided by clicks. Google Ads defines it as the average number of conversions per ad interaction, shown as a percentage, with the example of 50 conversions from 1,000 interactions, a 5% conversion rate. This one measures the landing page and the offer, not the ad. The conversion rate calculator handles the division and the reverse.
CPA: cost per acquisition
Spend divided by conversions. Google Ads reports it as cost per conversion, total cost divided by the number of conversions. A conversion is whatever you defined as valuable: a purchase, a lead, a call, a sign-up. CPA is the first metric on the list that talks about results rather than attention. The CPA calculator compares it with what a conversion is worth to you.
ROAS: return on ad spend
Revenue from the ads divided by the ad spend. Google Ads expresses it as a percentage, conversion value divided by cost times 100, and uses the example of US$5 in sales for every US$1 of spend, a 500% target ROAS. Most marketers write the same thing as 5.0 or 5x. ROAS ignores what the products cost you, which is why it needs the break-even check below. The ROAS calculator includes it.
CAC: customer acquisition cost
All the money spent on winning customers in a period, ad spend plus tools, agency fees and the salaries of the people doing the work, divided by the number of new customers in that period. Two differences from CPA: the numerator includes more than ad spend, and the denominator counts only new customers, not every conversion. The CAC calculator separates paid CAC from blended CAC.
LTV: customer lifetime value
What a customer is worth over the whole relationship. The simplest version is profit per order times orders per year times the years a customer stays. Set against CAC it answers the question the other metrics cannot: whether buying customers at this price is worth it. The customer lifetime value calculator also discounts future years.
How they chain together
Because every metric sits between two counts, each one can be written from its neighbours. These identities are the useful part of the cheat sheet: change one input and you can predict what happens two steps down the funnel.
Read the chain from left to right and the levers sort themselves out. CPM is set by the auction and the audience. CTR belongs to the creative. CVR belongs to the landing page and the offer. Revenue per conversion belongs to pricing and the basket. Each team owns one link, and the ROAS at the end is the product of all of them.
One campaign, worked end to end
A shop runs a campaign that gets 500,000 impressions for $4,000. The ads earn a 1.2% click-through rate, the landing page converts 2.5% of visitors, the average order is $80 and the gross margin on those orders is 40%.
| Step | Calculation | Result |
|---|---|---|
| CPM | $4,000 ÷ 500,000 × 1,000 | $8.00 |
| Clicks | 500,000 × 1.2% | 6,000 |
| CPC | $4,000 ÷ 6,000 | $0.67 |
| Conversions | 6,000 × 2.5% | 150 |
| CPA | $4,000 ÷ 150 | $26.67 |
| Revenue | 150 × $80 | $12,000 |
| ROAS | $12,000 ÷ $4,000 | 3.0 (300%) |
| Break-even ROAS | 1 ÷ 40% | 2.5 |
| Profit after ads | $12,000 × 40% − $4,000 | $800 |
A ROAS of 3.0 sounds healthy, and here it is, but only by $800, because the break-even is 2.5. Had the margin been 30%, the break-even would be 3.3 and the same campaign would lose money. Now the CAC and LTV layer. In the same month the shop also paid $1,500 for its ad tools and a freelancer, and 60 of the 150 orders came from first-time buyers. CAC = ($4,000 + $1,500) ÷ 60 = $91.67. If a new customer goes on to order 3 times a year for 2 years at the same $80 and 40% margin, the LTV is $80 × 40% × 3 × 2 = $192, and LTV ÷ CAC is 2.1. That ratio, not the ROAS, is what says whether paying $91.67 for a customer is a good deal.
What moves what
| You change | Directly moves | Leaves alone |
|---|---|---|
| The ad creative or targeting | CTR, so CPC and everything after it | CPM (mostly), CVR |
| The landing page or offer | CVR, so CPA and ROAS | CPM, CTR, CPC |
| The price or bundle | Revenue per conversion, so ROAS; often CVR too | CPM, CTR, CPC |
| The bid or the audience | CPM and CPC | CVR, if the audience stays the same |
| Fixed costs, tools, team | CAC only | Every ad-platform metric |
Common mistakes
- Judging a campaign by ROAS without the margin. ROAS is revenue, not profit. Compute the break-even ROAS first; anything below it loses money however large it looks.
- Treating CPA as CAC. CPA counts every conversion, including repeat buyers and leads that never pay. CAC counts new customers and all the costs. Comparing LTV with CPA flatters the business.
- Optimising CTR on its own. A clickbait ad raises CTR and lowers CPC, then the conversion rate collapses and CPA goes up. Watch CPA when you change creative.
- Mixing percentages and multiples. A 500% ROAS and a 5.0 ROAS are the same thing. A 5% ROAS would be a catastrophe. Write down which convention your report uses.
- Counting conversions twice. If the platform counts every conversion after a click and your shop counts orders, the two CPAs will differ. Use one source for the numerator and the denominator of each metric.
Frequently asked questions
What is the difference between CPA and CAC?
CPA is the ad cost of one conversion, whatever the conversion is: a sale, a lead, a sign-up, a repeat order. CAC is the full cost of winning one new customer: ad spend plus tools, agency fees and salaries, divided by new customers only. CAC is almost always higher than CPA, and it is the number to hold against lifetime value.
What is a good ROAS?
The one above your break-even ROAS, which is 1 divided by your profit margin. At a 40% margin you need a ROAS of 2.5 just to cover the ad spend; at 25% you need 4.0. A ROAS of 3.0 is a profit for the first business and a loss for the second, so there is no universal good number.
How do CPM, CTR and CPC relate?
CPC = CPM ÷ 1,000 ÷ CTR. An US$8 CPM with a 1.2% click-through rate gives an US$0.67 CPC. Raise the CTR with a better ad and the CPC falls without any change in what you pay per impression.
Why do my ROAS and my ROI differ?
ROAS compares revenue with ad spend and ignores what the products cost you. ROI compares profit with spend. ROI = ROAS × margin − 1, so a ROAS of 3.0 at a 40% margin is an ROI of 20%, and the same ROAS at a 30% margin is an ROI of −10%.
Is conversion rate based on clicks or impressions?
On clicks, or more precisely on ad interactions. Google Ads defines conversion rate as conversions divided by the ad interactions that could lead to a conversion, so 50 conversions from 1,000 interactions is a 5% conversion rate. Impressions only feed the click-through rate.
Sources
- Google Ads Help: Clickthrough rate (CTR): definition (clicks ÷ impressions, 5 clicks on 100 impressions is a 5% CTR)
- Google Ads Help: Cost-per-thousand impressions (CPM): definition
- Google Ads Help: Cost-per-click (CPC): definition, actual CPC
- Google Ads Help: Actual cost-per-click (actual CPC): often less than the maximum bid
- Google Ads Help: Conversion rate: definition (conversions ÷ ad interactions, 50 of 1,000 is 5%)
- Google Ads Help: Cost per conversion: definition (total cost ÷ conversions)
- Google Ads Help: About Target ROAS bidding (conversion value ÷ ad spend × 100%, the US$5 for US$1 example)