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You're spending money on ads. You're seeing clicks, impressions, conversions. Your dashboard looks healthy. But when you check your bank account, the numbers don't match the story your reporting tells you.
This disconnect is common. Most ad platforms are designed to make campaigns look successful, not to tell you whether they're actually making you money. The metrics they push to the top are the ones that keep you spending, not the ones that protect your cash flow.
If you want to know whether your ads are genuinely profitable, you need to track different numbers. Here are the five metrics that actually matter.
Your ad platform wants you to keep spending. That's not cynicism, it's just how the business model works. So the metrics it highlights are the ones that look good: reach, engagement, click-through rate, conversions.
The problem is that none of these tell you whether you made money.
A conversion might be someone who was going to buy anyway. A click might cost you more than the customer will ever spend. A campaign might look profitable this month but drain your cash reserves over the next three.
The dashboard shows activity. It doesn't show profit. To get that, you need to dig deeper and build your own view of what's actually working. If you're not sure where to start, Seogrowth can help you set up the right tracking and reporting systems to see the full picture.
This is the foundation. If it costs you more to acquire a customer than they'll ever spend with you, you're not running a business. You're running a charity for ad platforms.
Customer acquisition cost is everything you spend to get one new customer: ad spend, creative production, landing page costs, sales commissions. Customer acquisition cost includes all the labour and advertising required to bring someone through the door.
Customer lifetime value is the total profit you expect from that customer over the entire relationship. Not revenue. Profit.
The ratio between the two tells you whether your ads are sustainable.
If your CLV is $300 and your CAC is $100, your ratio is 3:1. That's generally healthy. It means you're making three times what you're spending to acquire the customer.
If your ratio is 1:1 or worse, you're losing money on every customer. If it's 10:1, you're probably underinvesting in growth.
But the ratio alone doesn't tell you everything. A 3:1 ratio over five years is very different from a 3:1 ratio over three months. Timing matters. Cash flow matters. Which brings us to the next point.
The 3:1 rule is a useful benchmark, but it's not universal. If you're in a high-margin business with fast payback, you can afford a lower ratio. If you're in a low-margin business with slow payback, you need a higher one.
A SaaS company with monthly subscriptions might be fine at 2:1 because they recover the cost quickly and retain customers for years. An e-commerce business selling one-off products might need 5:1 to stay solvent.
Don't blindly follow the rule. Understand your own economics and set thresholds that reflect your reality.
Revenue is a vanity metric. Gross profit is better, but still incomplete. What you actually need to know is how much profit each channel contributes after you account for the real costs of fulfilling and supporting those customers.
This is contribution margin, and it varies wildly by channel.
Gross profit margin tells you what's left after you subtract the cost of goods sold. That's useful, but it ignores everything else: shipping, returns, customer support, payment processing fees, refunds.
Two channels might have the same gross margin but completely different contribution margins. One might attract customers who need heavy support. The other might attract customers who never contact you.
If you're only looking at gross margin, you're missing half the picture.
Start with revenue. Subtract the cost of goods sold. Then subtract the variable costs specific to that channel: shipping, payment fees, support time, returns.
What's left is your contribution margin. This is the number that tells you whether a channel is actually worth the effort.
If one channel has a 40% gross margin but a 10% contribution margin, and another has a 35% gross margin but a 25% contribution margin, the second channel is more profitable. Full stop.
Track this monthly. Compare channels. Kill the ones that don't contribute enough to justify the ad spend.
Payback period is how long it takes to recover your customer acquisition cost. It's one of the most important metrics for cash flow, and one of the most ignored.
You can have a profitable campaign on paper and still run out of cash if the payback period is too long.
Let's say you spend $10,000 on ads in January. You acquire 100 customers at $100 each. Each customer is worth $300 over their lifetime, so the campaign is profitable.
But if those customers only spend $50 in the first month, you're $5,000 in the hole. If they spend another $50 in month two, you're still $2,500 short. You won't break even until month five.
If you're scaling aggressively, this creates a cash flow problem. You're constantly funding future profit with current cash. Eventually, you run out.
This is why payback period matters more than total profitability for most businesses.
Subscription businesses can afford longer payback periods because revenue is predictable. E-commerce businesses need faster payback because repeat purchase rates are lower.
A good rule of thumb: aim for payback within three to six months for e-commerce, six to twelve months for subscriptions. If you're outside those ranges, you need either more cash reserves or better unit economics.
Set a threshold that matches your cash position and stick to it. Don't let a campaign run just because it's "eventually profitable" if it's draining your reserves today.
Your ad platform will happily take credit for every sale that happens after someone clicks an ad. But not all of those sales were caused by the ad.
Some of those people were going to buy anyway. Some were influenced by other channels. Some clicked the ad, ignored it, and came back through organic search a week later.
What you need to know is incremental revenue: the revenue that wouldn't have happened without the ad.
Attribution models are useful, but they're not truth. Last-click attribution gives all the credit to the final touchpoint. First-click gives it to the first. Multi-touch tries to split it fairly.
None of them tell you what actually caused the sale.
If someone sees your ad, clicks it, leaves, searches for your brand, clicks an organic result, and buys, did the ad cause the sale? Maybe. Maybe not. Maybe they were already aware of you and the ad was just a reminder.
Attribution models can't answer that question. Only incrementality testing can.
A holdout test is simple: you stop running ads to a segment of your audience and measure what happens.
If revenue drops significantly in that segment, the ads were driving incremental sales. If revenue stays roughly the same, the ads were just taking credit for sales that would have happened anyway.
This is harder to set up than it sounds, and most businesses never do it. But it's the only way to know for sure whether your ads are actually working. For help designing and running these tests properly, Seogrowth's services include incrementality testing and attribution analysis.
ROAS is the most commonly cited ad metric. It's also one of the most misleading.
Standard ROAS calculations use gross revenue. They don't account for returns, refunds, cancellations, or chargebacks. So they overstate performance, sometimes dramatically.
Let's say you spend $1,000 on ads and generate $5,000 in revenue. Your ROAS is 5:1. Looks great.
But if 20% of those sales get returned or refunded, your actual revenue is $4,000. Your real ROAS is 4:1.
If returns happen 30 or 60 days after purchase, your initial reporting won't show the problem. You'll think the campaign is performing better than it is, and you'll keep spending based on inflated numbers.
To fix this, calculate ROAS on a rolling 90-day basis, adjusting for returns and refunds that happen after the initial sale.
Take your ad spend from 90 days ago. Take the revenue attributed to that spend. Subtract any returns or refunds that have happened since. Divide revenue by spend.
This gives you a much more accurate picture of what your ads are actually delivering. It's more work to set up, but it's the difference between guessing and knowing.
Most businesses spend more time reporting on ad performance than they do acting on it. They build dashboards, run weekly meetings, compare numbers to last month.
But reporting doesn't make you money. Decisions do.
The five metrics above aren't just numbers to track. They're decision triggers. If CAC is too high relative to CLV, stop the campaign. If contribution margin is negative, kill the channel. If payback period is too long, reduce spend until your cash flow stabilises.
Set thresholds. Automate alerts. Make decisions fast.
The businesses that win with ads aren't the ones with the best dashboards. They're the ones that know when to stop, when to scale, and when to walk away. If you need expert guidance building these systems and making smarter ad decisions, contact Seogrowth for a consultation.
