Marketing acronyms in plain language: CPM, PPC, ROAS, PNO and the rest
We guarantee a ROAS of 4 at a PNO of 25 %. It sounds like a result worth having. At a 20 % margin it is minus two hundred euros, and you cannot tell that from the sentence.
Eduard Hirjak
MeaOvis founder
Article contents
You get a proposal for advertising and in it a sentence: “We guarantee a ROAS of 4 at a PNO of 25 % and a CTR above 2 %.” It sounds like a result worth having. It can also be a loss-making month, and you cannot tell that from the sentence. This article translates the acronyms you hear most often in marketing, and above all it shows which of them talk about revenue and which about profit. Those are not the same thing.
One sentence to take away. The acronyms at the start of the alphabet (CPM, CPC, CPA) say what you are paying for. The ones at the end (CTR, CR, ROAS, ROI, PNO) say what you got. Of those, only ROI counts profit. All the others can look beautiful even while you are losing money.
The first group: what you are paying for
When you buy advertising, you are buying one particular thing. What that thing is also decides who carries the risk that it will not work.
| Skratka | You pay for | When it makes sense |
|---|---|---|
| CPM | a thousand impressions | When you want people to know you exist. Nobody has to click and you pay anyway. |
| CPT | a thousand impressions | The same as CPM, only in German. In proposals from Austria and Germany you will see this one instead. |
| CPC | klik | When you want people on the website. Impressions are free, you pay only for the visit. |
| PPC | klik | The same thing from the other side: CPC is the price, PPC is the way of buying. It usually means search ads. |
| CPV | a video view | For video. Watch what counts as a view: two seconds and thirty seconds are very different things. |
| CPA | an action, for example a completed form | When you know what counts as an enquiry for you. The risk on impressions and clicks is carried by the ad system. |
| CPS | predaj | Affiliate and partner programmes. You pay a percentage only on an order that actually happened. |
| PPA | an action or a sale | An umbrella term covering both CPA and CPS. In proposals it is used loosely, so ask for the definition. |
Notice how the risk travels from top to bottom. With CPM you carry all of it: you pay even if nobody cares. With CPS you carry almost none, but you pay the most per order. It is not that one model is better. You are paying for certainty, and certainty costs something.
The second group: how you reach people
These three acronyms are not prices but channels. They get mixed up most often.
| Skratka | What it is | What belongs there |
|---|---|---|
| SEO | the work of getting search engines to find you on their own | Content, the technical state of the site, speed, links from other sites. You do not pay for clicks, you pay for work. |
| SMM | marketing on social networks | Posts, answering people, collaborations, paid ads on the networks. Everything you do there, in other words. |
| SMO | tidying up your own profiles and website for the networks | A filled-in profile, a name people understand, sharing buttons, the right image when a link is shared. Done once and then maintained. |
SMO is the most overlooked of the three and also the cheapest. When your link shows up in a message with no image and a file name instead of a title, no budget will help. On what that looks like and where it is set, we have a separate article on image formats.
The third group: what you got for it
This is where it starts to break, because these numbers can be interpreted.
CTR: how many people clicked
Clicks divided by impressions. When 10,000 people saw the ad and 200 clicked, the CTR is 2 %.
It tells you whether the ad interested people. It tells you nothing about whether they then bought anything. A high CTR can be manufactured with a promise the website does not keep. Then you have expensively bought visitors who leave within five seconds.
CR: how many of them did what you wanted
Conversions divided by clicks or visits. When 200 visits produced 6 enquiries, the CR is 3 %.
This number matters far more than CTR, and it can be improved without adding a single euro to advertising. A faster site, a form people understand and a price stated outright can move conversion more than doubling the budget.
ROAS: how much revenue per euro of advertising
Revenue divided by ad spend. You spent 1,000 € and brought in 4,000 € of revenue, so the ROAS is 4, that is 400 %.
It sounds like a clear win. But ROAS counts revenue, not profit, and whether you earned anything is decided by your margin. We get to that a paragraph below.
PNO: what percentage of revenue the advertising ate
Cost as a share of turnover. It is the same figure as ROAS, only inverted: at a ROAS of 4 the PNO is 25 %.
It is used mainly here and in the Czech Republic; in foreign systems you will rarely come across it. The conversion is simple: PNO equals one hundred divided by ROAS expressed as a percentage.
ROI: the only number that counts profit
Profit minus cost, all divided by cost. This is the only one of the acronyms listed that asks whether anything was left for you.
Why a ROAS of 4 can be a loss-making month
This is the whole heart of the article, so let us work it out on real numbers.
You sell goods at a 20 % margin. You spent 1,000 € on advertising and it brought in 4,000 € of revenue. So a ROAS of 4 and a PNO of 25 %. In a proposal that looks excellent.
- Revenue: 4,000 €
- Margin of 20 %, so what is left of the revenue: 800 €
- You paid for advertising: 1,000 €
- Result: minus 200 €.
With the same campaign at a 40 % margin you would be 600 € to the good. The same numbers in the report, the opposite outcome in the bank.
From that follows the only number worth remembering: advertising starts to pay off from the ROAS that equals one divided by your margin. At a 20 % margin you need a ROAS of 5. At a 50 % margin a ROAS of 2 is enough. At a 10 % margin you need a ROAS of 10, and at that point the question is whether to advertise at all.
What is worth asking a supplier. Not “what will the ROAS be”, but “what ROAS do I need so that I am not losing money”. If they cannot work that out from your margin, they do not know your business.
Two things that distort those numbers
Even when you do all the arithmetic correctly, there are two places where the report and reality part ways.
First: ad systems claim credit for orders that would have come anyway. When somebody already knows your brand, types it into search, clicks your own ad and orders, the system records it as its own success. Meanwhile you paid for a customer who was already looking for you. With small brands there is little of this; with well-known ones there is a lot.
Second: the numbers in the report know nothing about returned goods or unpaid invoices. In clothing stores anywhere from a tenth to a third of orders commonly come back. ROAS does not account for it, because the revenue was counted at the moment of the order.
In closing
Acronyms are not a scam and they are not there to intimidate anyone. They are shorthand in exactly the sense tradespeople use it: a quick way to understand each other.
The problem starts when they are used to cover up a simple question. That question is: how much money was left for us after everything was paid. If a supplier answers it with a number that does not count profit at all, they need not be lying. It is enough that they are answering something other than what you asked.
Technical appendix
The formulas in one place, so it can be recalculated without hunting for them.
Calculations
| Skratka | Calculation | Example |
|---|---|---|
| CTR | clicks divided by impressions, times one hundred | 200 / 10,000 = 2 % |
| CR | conversions divided by clicks, times one hundred | 6 / 200 = 3 % |
| CPC | spend divided by clicks | 1,000 / 200 = 5 € |
| CPM | spend divided by impressions, times one thousand | 1,000 / 10,000 × 1,000 = 100 € |
| CPA | spend divided by conversions | 1,000 / 6 = 167 € |
| ROAS | revenue divided by spend | 4,000 / 1,000 = 4 |
| PNO | spend divided by revenue, times one hundred | 1,000 / 4,000 = 25 % |
| ROI | profit minus cost, divided by cost, times one hundred | 800 minus 1,000, divided by 1,000 = minus 20 % |
| Break-even ROAS | one divided by margin | 1 / 0.2 = 5 |
Where the definitions part ways
When comparing two proposals it is worth checking these three things, because every system sets them its own way.
- What counts as an impression. Some systems count an ad as shown even when it appeared off screen. Ask about viewable impressions.
- What counts as a conversion. An order, an enquiry, or even a tap on a phone number? With a looser definition the numbers look better.
- How long the attribution window is. If somebody clicks today and orders three weeks later, does the ad take credit? With a longer window the system claims more.
Related reading
Social networks: which one is for what, and how our market differs from the American one.
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FAQ
Questions on this topic
What is the difference between ROAS and ROI?
ROAS is revenue divided by ad spend. ROI is profit minus cost, divided by cost. The difference is that ROAS counts revenue and ROI counts profit.
That is why a ROAS of 4 can lose money. At a 20 % margin, 4,000 € of revenue leaves you 800 €, you paid 1,000 €, and you are 200 € down.
What ROAS do I need for advertising to pay off?
One divided by your margin. At a 20 % margin you need a ROAS of 5, at a 50 % margin a ROAS of 2 is enough, at a 10 % margin you need a ROAS of 10.
This is the question worth putting to a supplier: not what the ROAS will be, but what ROAS you need. If they cannot work that out from your margin, they do not know your business.
What is PNO?
Cost as a share of turnover, that is what percentage of revenue the advertising ate. It is the same figure as ROAS, only inverted: at a ROAS of 4 the PNO is 25 %.
It is used mainly here and in the Czech Republic. The conversion is one hundred divided by ROAS expressed as a percentage.
What is the difference between CPM and CPC?
With CPM you pay for a thousand impressions, with CPC for a single click. With CPM you carry the risk, because you pay even if nobody clicks. With CPC the ad system carries it.
CPM suits you when you want people to know you exist. CPC when you want to get them onto the website.
Is a high CTR good news?
Not on its own. CTR says how many people clicked, not how many of them bought anything. A high CTR can be manufactured with a promise the website does not keep.
CR matters more, that is how many visits ended in an enquiry or an order. That can be improved without adding a single euro to advertising.
Why do the numbers in the report differ from reality?
Two places distort it most often. Ad systems claim credit for orders that would have come anyway: when somebody already knows your brand, types it into search and clicks your own ad.
And reports know nothing about returned goods. ROAS counts the revenue at the moment of the order, so in sectors with high return rates it is overstated.
You will find more answers in the section FAQ.
About the author
Eduard Hirjak
Founder of MeaOvis, senior full-stack developer
He has been building websites and apps for more than 20 years and has 100+ projects behind him: from presentation websites through online stores to booking systems and iOS apps. On the blog he explains technical things so that every business owner understands them.