Advertising Formulas: The 8 Ad Equations Marketers Must Know

by Josh Barney
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Do you know all of your advertising formulas?

You don’t need to be a genius with numbers to become an awesome digital advertiser…

…but you must be able to follow a few crucial advertising formulas (and use a calculator!).

Data is the driving force behind ~90% of our decisions online (the other 10% comes down to experience, instinct and skill), so it’s incredibly important that you know these ad formulas and how to use the results.

A fundamental step towards successful digital advertising is split testing. When you test different ad elements against each other, you should use ad formulas to find the winner and optimise your campaigns.

In the rest of this article, I’m going to highlight 8 fundamental advertising formulas and how you can use them to steer your campaigns in a winning direction.

Let’s get into them…

CPC Formula (Cost-per-click)

CPC Formula:

CPC = Advertising Spend/Number of Clicks 

CPC Example:

You spend £100 on digital ads and generate 1000 clicks. Your CPC is 10p.

100/1000 = 0.1

CPC Definition:

CPC (cost-per-click) refers to the amount spent on a digital ad per (mouse) click from its audience.

The lower your CPC the better your ad, the more targeted your audience and the better your timing.

Every ad you run should aim to create action in your target audience. This action can be measured in ‘Clicks’.

However, a high CPC doesn’t necessarily represent a poor ad. If you’re running a conversion campaign, your ads might have a high CPC but high conversion rates too (which will mean they’re a success).

CPC is the best metric to use for ads that are aimed at driving high volumes of traffic, not conversions or engagement (learn more in our guide to Facebook Ad Campaign Objectives).

ad formulas and equations

Conversion Rate Formula   

CR Formula:

Conversion Rate (%)= (Number of conversions/Number of clicks) x100

CR Example:

200 people click on my ad and I generate 25 conversions from these visitors. My Conversion rate is 12.5%.

(25/200) x100 =12.5%

CR Definition:

Conversion rate is the percentage of people who take your offer after seeing it.

Your conversion rates demonstrate the quality of your landing page, the strength of your offer and how appropriate your audience is (for your ad’s offer).

Creating ads that generate clicks means nothing if you aren’t able to convert them on your landing pages.

In order to optimise your conversion rates, make sure that you’re targeting people at the appropriate point in their relationship with you. You can do this by retargeting people as custom audiences after they have already interacted with your brand/website/posts/offers.

You can also increase conversion rates by ensuring that your landing pages and ads are consistent, you’re using social proof and FOMO, to name a few examples.

CTR Formula (Click Through Rate)

CTR Formula:

CTR (%)= (number of clicks/number of impressions) x 100

CTR Example:

5000 people see my link and 1000 of those click on it. My CTR is 20%.

(1000/5000) x100 = 20%

CTR Definition:

CTR shows the percentage of people who click on your CTA/link/offer, after seeing it.

Your click-through rate demonstrates the power and appropriateness of your CTA (call to action).

Although CTR isn’t always used in digital advertising, it is a crucial formula when understanding the strength of retargeting (e.g. clicks on cart abandon emails) and broadcasts.

Think of CTR like this, the number of people who see your offer and the percentage of those who decide to find out more about it.

The higher your CTR, the more successful your ad’s CTA (or link placement) and target audience.

Einstein Marketer CEO, Mat Wilson explains a crucial step to reducing your CTR.

CPM Formula (Cost Per Mille) 

CPM Formula:

CPM= (Ad spend/Impressions) x1000 

CPM Example:

I spend £21 on an ad that 3000 people see. This means that my CPM is £7.

(21/3000) x1000 = £7

CPM Definition:

CPM (Cost per mille) tells you how much you have paid for a thousand people to see your ad.

BTW: Mille is a Latin word for thousand e.g. millennium or millipede

As the digital world allows advertisers to show ads to people for very little (per impression) and we can track every single ad impression, your CPM is a great measure of how expensive an ad is.

As you’d expect, the CPM varies across platforms and your ad’s success (learn how to prime your ads for the Facebook ad algorithm).

This formula is best used by brands who are hoping to increase their awareness and exposure online, as it does not track actions, conversions or clicks.

CPL Formula (Cost Per Lead)

CPL Formula

Ad Spend/Leads Generated

CPL Example

You spend £100 on ads and generate 20 leads. Your CPL is £5.

100/20 = 5

CPL Definition

CPL (cost per lead) is the number used to describe how much you are spending on ads to generate one lead.

The lower your CPL, the cheaper your leads!

As an advertiser, you’ll be aiming to lower your CPL as much as possible, but you must ensure that this doesn’t come at the detriment of the quality of your leads.

High-quality leads are members of your target market, who are likely to buy from your business at some point in the future.

The best way to reduce your CPL is to offer something in exchange of their contact details, this is known as a lead magnet.

If you aren’t using one already, download our free lead magnet checklist from the Einstein Marketer studio.

CPA Formula (Cost Per Acquisition)

CPA Formula:

CPA =Ad spend/Total Acquisitions

CPA Example:

I spend £50 on a digital advertising campaign that acquires 100 leads. My CPA is 50p.

50/100 = 0.5

CPA Definition:

CPA denotes how much an advertiser has spent to achieve EACH conversion (aka acquisition).

A conversion doesn’t necessarily refer to product sales, CPA can also be used for leads (like the example above).

The CPA doesn’t take into account impressions or clicks and works completely on the productivity of your ad spend.

CPA is a critical metric for anybody running conversion campaigns with the aim of generating leads or sales.

Shaqir Hussyin speaks about CPA at EMC 2021!

ROI Formula (Return on Investment)  

ROI Formula:

ROI= (Total Revenue – Total Cost)/ Total cost

Or

ROI as a percentage (%)= (Total Revenue – Total Cost)/Total Cost (x100)

ROI Example:

I spend £200 on ads that generate £600 in product sales. My ROI is £2 for every £1 spent, or 200% (if you want to see ROI as a percentage).

(600-200)/200=2

Or

(600-200)/200(x100)=200%

ROI Definition:

ROI shows an advertiser how much they are returning for every £ (or $) spent on ads. This can also be shown as a percentage.

ROI is a crucial metric for advertisers who are running conversion campaigns.

Ad campaigns that are created to acquire leads or customers, but don’t return an advertiser’s spend (by at least breaking even) will lose money.

ROI is a formula that can be used and transferred into any element of business where money is spent, making it crucial in all aspects of marketing, not just advertising.

ROAS Formula (Return On Advertising Spend)

ROAS Formula:

ROAS = (Total Revenue from Advertising/Total Ad Spend) x100

ROAS Example:

I spend £1000 on Facebook ads and make £3000 in sales. My ROAS is 300%.

(3000/1000) x100 = 300%

ROAS Definition:

ROAS shows an advertiser how much they are returning (in terms of revenue) on their advertising spend.

ROAS is another crucial metric when measuring the quality of a conversion campaign.

Although ROI is similar, ROAS is much more tactically specific to advertising, and it can be made even more specific for each advertising channel.

A great way to lower your ROAS is with retargeting. Here Tom Breeze, explains how that process works on YouTube.

Conclusion

When used correctly, the 7 formulas in this guide can help direct and dictate the success of your campaigns.

You should be running split tests and allowing your ads enough time (usually a week) to gather a reliable amount of data before using these formulas.

The answers will tell you which campaigns to back and which to kill, making these formulas crucial to your success.

Just remember to match the correct metric with the correct ad objective.

Want more marketing strategies, guidance and knowledge? Create your free account to the Einstein Marketer Studio today!

Josh is the Founder of We Imagine Media, an award-winning content marketer and best selling author. He creates and strategises content, sharing the most successful tactics with his lovely audience. He hates writing in the third person, follow him on the social links (above) so he can get back to writing as himself.

6 Responses

    1. Hey Genel, thanks for the comment and the nice words about my content!
      Unfortunately, it’s impossible for me to tell you the solution to an expensive CPM without knowing more about the industry, placement of the ad (the platform) and your targeting tactics. If it’s on FB (which i suspect it is) the best way to reduce your CPM is to narrow your targeting options (to your ideal audience), use a more engaging creative, split test copy or try running an engagement campaign on the ad first so it has more social proof. FB will show your ad to more people if it sees that more people like the ad. Make this your number one priority.

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