Digital marketing is a jungle of abbreviations and technical terms. For many, acronyms like CTR, CPA, and ROAS can seem overwhelming and complicated. The truth is, you don't need to understand all of them, but a select few are essential for measuring whether your marketing is actually working. In this article, we'll go through the most important key figures in a simple way, so you can use them to make better decisions.
CTR – Click-Through Rate
Click-Through Rate, or CTR, shows what proportion of people who see your ad actually click on it. You calculate it by dividing the number of clicks by the number of impressions and multiplying by 100. For example, if an ad has been shown 10,000 times and received 500 clicks, it has a CTR of 5 per cent. A high CTR is often a good sign, as it indicates that the ad's message, image, or video is capturing the target audience's attention and is relevant to them.
However, it's important to remember that a high click-through rate alone is not a guarantee of success. Many clicks don't necessarily mean that those who click end up buying something or getting in touch. For example, an ad with a funny picture might get a lot of clicks out of curiosity, without the traffic being particularly ready to buy. CTR should therefore always be considered in the context of what happens after the click.
CPL and CPA – The price of a lead or action
CPL (Cost Per Lead) and CPA (Cost Per Acquisition) are two key figures that measure the cost of a specific result. CPL shows how much you pay on average for an enquiry, or a "lead". This could be someone filling out a contact form, signing up for a newsletter, or requesting a demo. If you spend kr 20,000 on a campaign and get 40 enquiries, your CPL is kr 500. For service-based businesses, such as tradespeople or consultants, this is often one of the most important numbers to monitor.
CPA is a slightly broader term that measures the cost per desired action, or "acquisition". You must define what this action is yourself, but it can be anything from a completed purchase and a booking to a registration for a webinar. If an online store spends kr 30,000 on advertising and gets 15 sales, the CPA for a sale is kr 2,000. Both CPL and CPA help you understand the real cost of acquiring new customers or opportunities.
ROAS – Return On Ad Spend
Return On Ad Spend, abbreviated as ROAS, is for many the ultimate measure of advertising profitability. The figure shows how many kroner you get back in revenue for every krone you invest in ads. The formula is simple: revenue from ads divided by ad spend. If you spend kr 20,000 on a campaign that generates kr 100,000 in direct sales, you have a ROAS of 5, or 500 per cent.
This figure is particularly valuable for online stores, as it provides a direct link between advertising costs and income. A Norwegian online store selling outdoor gear, for example, might see that ads on Google Shopping yield a ROAS of 8, while ads on Facebook give a ROAS of 4. Such information is invaluable for knowing where to allocate the marketing budget to get the most for your money.
From revenue to real profit
Although a high ROAS is a good sign, it is not automatically synonymous with high profit. ROAS only looks at revenue, not the company's margins. To know if a ROAS of 5 is actually profitable, you need to know the product's cost of goods, contribution margin, and other associated expenses. A company selling luxury goods with a 70 per cent margin can make a good profit with a ROAS of 3, while another selling low-price electronics with a 15 per cent margin could make a loss with the same result.
You must, therefore, view ROAS in the context of your own business model. How much profit are you left with after all costs are deducted? Only when you know this figure can you set a realistic goal for what constitutes a profitable ROAS for your specific business.
How the numbers tell a story
None of these key figures is the most important on its own; their real value lies in how they complement each other. Together, they can tell a whole story about the customer journey, from the first glance to the final action. A high CTR tells you that your ad is capturing attention, but if the conversion rate on your website is low, it might indicate that the landing page isn't delivering what the ad promised. A low CPL is good, but if none of the enquiries turn into paying customers, you've just bought expensive conversations.
Think of it this way: CTR and CPC measure the effectiveness of the first step – creating relevant traffic. The conversion rate tells you how good your website is at convincing visitors. CPL, CPA, and ROAS measure the final business result of the effort. By analysing these figures in conjunction, you can identify where in the chain you have potential for improvement.
Focus on what provides a basis for decisions
A dashboard full of graphs and numbers is of no use if it doesn't help you make better choices. Good reporting is not about collecting as much data as possible, but about distilling the insights you need to act. The goal of monitoring the numbers is to get answers to simple, but powerful questions: What's working, and what's not? Where should we invest more money, and what should we stop or change? It is only when the numbers give you a clear basis for decisions that they become a valuable tool for growth.
Need help understanding and improving the numbers in your marketing? Get in touch with us at Vekstloop.
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