Why a funnel view helps
Ads performance often looks confusing because metrics overlap. A simple funnel makes the levers clear: CPM determines how much you pay for exposure, CTR converts exposure into visits, CVR converts visits into orders, and AOV plus margin determine whether ads are profitable.
Core formulas (quick reference)
- Clicks per 1,000 impressions = 1000 * CTR.
- CPC = CPM / (1000 * CTR).
- CPA = CPC / CVR.
- ROAS = revenue / ad spend.
- Contribution margin = gross margin - fees - shipping - returns (simplified).
- Break-even ROAS = 1 / contribution margin.
- Break-even CPA = AOV * contribution margin.
How to diagnose issues
| If this is bad... | Look at... | Typical fixes |
|---|---|---|
| High CPC | CPM and CTR | Improve creative fit, targeting, placements; reduce CPM; lift CTR. |
| High CPA | CPC and CVR | Fix landing page and offer; improve intent; reduce friction; better audience. |
| ROAS looks okay but profit is negative | Contribution margin and returns/fees | Use margin-aware targets; exclude low-margin products; reduce returns; increase AOV. |
| Great short-term ROAS but growth stalls | Attribution and incrementality | Test holdouts; avoid over-crediting retargeting; invest in prospecting. |
Common pitfalls
- Attribution windows differ across platforms; compare apples-to-apples.
- Revenue-based ROAS can hide low margins and high returns.
- Optimizing CTR can decrease intent and lower CVR.
- Retargeting often looks great in ROAS but can be incremental only partly.
Best practice targets
- Start with contribution margin to compute break-even ROAS and break-even CPA.
- Set different targets by channel (volatility and intent differ).
- Revisit targets when margin, fees, or return rates change.