The Big Guide to Digital Advertising Terms

Are you confused by all of the acronyms and terms thrown around when talking about advertising? Let’s break down all of the digital advertising terms you’re likely to encounter. Like most industries, the ad world has developed a lot of specific terms and acronyms. Dig in and learn what all these terms mean.

For this guide, Facebook includes the entire ad network which is Facebook, Instagram, Messenger, and Audience Network. Facebook uses the same ad manager and metrics across its networks.

Ad Relevance Diagnostics – Facebook

Tool available in Facebook to diagnose ads that are underperforming. Helps to improve your Quality Ranking, Engagement Rate Ranking, and  Conversion Rate Ranking which will improve the performance of your ads.

Ad Unit

A placeholder for an ad in the layout of a website or app.

ad unit example on a website

Advertising Cost Of Sale (ACOS)

Typically a metric used to measure the performance of a Sponsored Product campaign on Amazon. It answers the question of how much ad spend does it take to reach the target sales.

ACOS = (total ad speed / sales) * 100

Example: $50 in ad spend. Assume good sold is $13. You sold 15 items total. Sales = 13 * 15 = $195. The ACOS is (50 / 195) * 100 = 25.6%.


Arbitrage is a practice in which you take advantage of price differences between two or more markets.


In the context of advertising, arbitrage is when a mediator (let’s be honest a middle man) purchases ad inventory from a publisher and resells it at a higher price. An ad agency or other middle man with direct access to ad inventory purchases the inventory. Then they generally add a significant markup to the ads. It is a form of information asymmetry wherein one party has more knowledge than another purchasing indirectly.

This is one of the reasons we feel it is so important to learn how self-serve platforms like Facebook and Google work. Don’t get screwed!

Online Sales

A common way for sellers to make money on Amazon is to use arbitrage. In these cases, the sellers do research on items that are popular on Amazon. Target, Walmart, or other big box stores often need to clear inventory and markdown prices to clearance. The reseller has a clear information advantage. They can purchase an item at 50% or more off from retail and resell on Amazon at full price or greater.

See this retail arbitrage article from The Washington Post to further understand the concept. Some retail stores have stopped selling certain items in bulk to reduce retail arbitrage.


Attribution simply means giving credit to the action that leads to a conversion. While the definition is simple, the calculation is extremely complex. Organizations of all sizes struggle with defining and implementing attribution tracking. The reason someone bought something or filled out a form is almost certainly a result of many touch-points.

Last Click

All credit given to the last click prior to a conversion event.

First Click

All credit given to the first click prior to a conversion event.


Credit is spread evenly throughout all interactions prior to a conversion event. For example, if there are 5 ads viewed before someone joins to become a member, each ad would receive 20% credit to the conversion.

Time Decay

More credit is given to the interaction closest to the time of the conversion event. Typically done in a 7-day period. An interaction from 8 days ago would get half the credit than a day prior.


40% of credit goes to the first and last clicks. The remaining 20% is distributed to all other interactions in between.


Uses systems and tools to determine attribution. Requires a lot of data and is often expensive to achieve.

Average Order Value (AOV)

In aggregate the amount spent by a customer for any given order.

AOV = Total Revenue / Number of Orders

Example: Your total revenue is $835. You processed 63 orders. You AOV is 835 / 63 = $13.25.

Call To Action (CTA)

A link or button on an ad, website, form, etc. text to entice someone to click. Typical CTAs are ‘ Learn More’ or ‘Sign Up’. Try to be creative and specific for better results.

Clicks (All) – Facebook

Facebook tracks different types of clicks. It is important to understand the different types of clicks to understand your performance. Clicks (All) is exactly what it sounds in that it counts all clicks, not just link clicks. For example, it counts clicks to the profile, expanded ads, and other clicks. This may not be as valuable as clicking the link in the ad itself.

Click Through Rate (CTR)

This measures the number of times your ad was clicked compared to the total number of impressions. A higher CTR signifies that the ad is more relevant. This metric is also important with Google for organic search and overall ad performance and delivery. A CTR is delivered as a percent of the number of times the ad was clicked.

CTR = (clicks / impressions) * 100

Example: For 1,450 impressions you get 110 clicks. The CTR would be (100 / 1,450) * 100 = 7.58%.

Click Through Rate (All) (CTR) – Facebook

As with other metrics, Facebook uses the All and Link metrics for CTR. This uses Facebook’s Clicks (All) metric.

CTR (All) = (Clicks (All) / Impressions) * 100

Click Through Rate (Link) (CTR) – Facebook

This uses Facebook’s Link Clicks metric to calculate the CTR.

CTR (Link) (Link Clicks / Impressions) * 100

This metric is typically lower that the CTR (All) from Facebook.

Competitor Targeting Advertising

A technique where an advertiser places bids to show ads against a competitor’s brand name in Google Search Ads. An example would be Agency A bidding on the keyword Agency X who is a direct competitor. When someone searches for Agency X the ads for Agency will be displayed.

There are many potential problems doing this, the least of which is a bidding war on branded ad terms. Using a trademark in your ad could face more serious consequences.


A conversion is when someone completes your desired goal for a given ad. A conversion can be a sale, form submission, lead generated, or other business goals.

Conversion Rate (CR)

The percent of people who complete a desired goal out of all people who took the intended action. An example would be the number of visitors to a website who complete a form compared to the total number of people who visited the page. The conversion rate is expressed as a percent. Conversions can be different goals. Facebook wraps conversions under a result to better express how a particular ad was at driving a desired result.

Conversion Rate Optimization (CRO)

Methods used to increase the effectiveness of conversions. Good conversion rates vary by industry and other factors. The goal is to meet or exceed average conversion rates. The better your conversion rate, generally the better your profits. Good conversion rates enable you to spend more on advertising because you can profitably acquire new customers.

Conversion Rate Ranking – Facebook

Evaluates the expected conversion rate of your ads against ads competing for the same audience.

Cost Of Goods Sold (COGS)

Cost of Goods Sold is the total cost of labor and materials directly required to produce a good (product). The cost does not include indirect costs such as sales and marketing costs. Assume you sell sneakers. Materials cost you $4.50 and labor to create the sneaker costs you $6.25. The COGS would be $10.75. You need to sell your sneakers for much more than that to make a profit.

This is an important number to understand because it directly impacts your profitability. When advertising, you need to understand your margin to make sure you are advertising with a profit. COGS is one thing to consider as is the lifetime value of a customer.

Cost Per Action (CPA)

See Cost Per Acquisition.

Cost Per Acquisition

This one is a bit tricky depending on who you ask. Some define it narrowly as the cost to get a sale. Others define it more broadly as cost per conversion. Google uses the latter, so we’ll go with that. Consider that a conversion is a specific action you want someone to take, it is useful to know how much that action costs.

Cost per acquisition is your ad spend divided by the number of acquisitions.

Cost Per Acquisition = total ad spend / total acquisitions

Example: You spend $75 on ads and get 5 sales (acquisitions). Your cost per acquisition is 75 / 5 = $15.

Cost Per Click (CPC)

This is simply how much each click costs.

to calculate is total ad spend amount / total clicks

Example: You spend $100 on an ad and receive 120 clicks. The CPC would be calculated as 100/120 = 0.83. Your CPC is 83 cents.

Cost Per Click (All) (CPC) – Facebook

Calculated the same as CPC, but it uses Clicks (All) in Facebook instead of just link clicks. This is generally a better number than traditional CPC which tends to be cost per link click.

Formula for Facebook
total ad spend amount / clicks all

Example: For $100 spend you get 150 clicks. The CPC (All) would be 100/150 = .67. Your CPC (All) is 67 cents.

Cost Per Click (Link) (CPC) – Facebook

Facebook divides CPC into All and Link clicks. The link clicks are the more traditional cost per click.

Formula for Facebook
total ad spend amount / link click

Example: For $100 spend you get 90 link clicks. The CPC (Link) would be 100/90 = 1.11. Your CPC (Link) is $1.11.

As you can see with Facebook, be sure to track the CPC that means the most for your business. The CPC (All) and CPC (Link) can vary greatly.

Cost Per Conversion (CPC)

See cost per acquisition.

Cost Per Lead (CPL)

Cost per lead is a specialized form of cost per acquisition. The concept is the same, except the acquisition is a lead. See Cost Per Acquisition for the formula for calculation.

Cost Per Mille (CPM) AKA Cost Per Thousand

For my fellow US readers, you want to extrapolate mille to million. No, this is derived from Latin where mille is one thousand. This is a common metric for measuring ad performance across platforms. It refers to the cost to have 1,000 impressions on your ad.

(total ad spend amount / impressions) * 1,000

Example: For $100 ad spend you get 50,000 impressions. The CPM would be (100 / 14,500) * 1,000 = 6.89. Your CPM would be $6.89.

Cost Per Result – Facebook

Similar to cost per acquisition, but specific to Facebook. It is the average cost per result from your ads.

Cost Per Result = total ad spend / total results

Example: You spend $75 on ads and get 5 results. Your cost per result is 75 / 5 = $15.

Customer Acquisition Cost (CAC)

The approximate total cost to acquire a new customer. The cost includes all sales and marketing costs. It is an important metric because you can use it to determine how much money you can spend to acquire a customer. There is a ratio of CAC to LTV that is considered a great business. Your LTV should be 3 times greater than your CAC.

This is different from the ad specific costs of Cost Per Acquisition and its relatives. The cost includes your overhead for sales and marketing, as well as your cost to run your advertising. This is a total picture of how much it costs to get a new customer.

In simple terms, the greater your LTV, the larger your CAC can be while remaining profitable.

CAC = (marketing costs + sales cost + advertising costs) / total number of customer acquired

Example: Your marketing costs are $10 (ad production). Your sales costs are $20. Your ad costs are $15. For this campaign you’ve acquired 4 new customers. Your CAC is (10 + 20 + 15) / 4 = 45 / 4 = $11.25.

Customer Lifetime Value (CLV)

See LTV.

Demand Side Platform (DSP)

A marketplace where publishers list their advertising inventory (see ad unit) for advertisers to purchase. This is software that enables real-time bidding across various networks. An example would be advertising on properties such as The Verge, The Denver Post, or others.

DSPs usually are programmatic and include real-time bidding. This makes it easier to bid on ad units that you desire.

Direct Response

A technique used in advertising designed to get an immediate action from a visitor. The response has to be measurable and trackable. Direct response ads generally go to a dedicated landed page to match the action desired from the ad.

Common direct responses include the following: Downloads, free/trial signups, demos, newsletter signups, and more.

Engagement Rate Ranking – Facebook

Your ad’s expected engagement performance compared to ads competing  for the same audience.


The number of times a person was shown your ad. The thought is that the more times someone in your target audience sees your ad the more likely to increase awareness and recall.

Gross Merchandise Value (GMV)

Gross Merchandise Value represents the total amount of money passed through a given business for a sale. The business does not retain all of the revenue, rather a percentage of the revenue, which is the take rate.

A good example would be Apple’s App Store. While it is more complex than this, the common knowledge is that Apple retains 30% of any sale done through the App Store. For example, you may pay $5 for an app in the App Store. The $5 would be the GMV, even though Apple does not keep the entire $5.


The number of times your ad was displayed on screen.

Facebook Impressions

It is important to understand that this is calculated in a specific way. For Facebook, an ad that is on screen counts as an impression. If a user scrolls back up in the feed, that does not count as a new impression. If the ad is displayed again at a different time of day that would count as a second impression.

Google Impressions

Google calculates an impression as counted for each time your ad is shown on a search result page or other sites on the Google Network. YouTube calculates impressions similarly for overlay and display ads, but for each time it is displayed in a video or in the sidebar of the video (both for desktop only). NOTE: YouTube video ads are different.

Key Performance Indicators (KPIs)

A set of measurements is used to assess the success of a given advertising campaign. KPIs need to be measurable and attributable to a campaign to be valuable.


A lead is someone who has taken an action that is added to a database for outreach. This is typically for businesses with long sales cycles and high prices. For B2B it could be a SaaS platform like Salesforce. It is unlikely that someone will sign up for a subscription directly through advertising because of the commitment.

In a B2C scenario, you can think of car sales. It is not likely that someone would see an ad for a car and buy it without seeing it or test driving it. Most car dealerships pay per lead to get someone into the door of the dealership.

Lifetime Value (LTV)

The total amount of revenue expected from a customer for the duration of their lifetime. For example, think of a company like Starbucks. A customer does not purchase a single coffee to never return (it may happen, but probably rare). Starbucks also sells other items such as water, mugs, coffee grinds, and more. Each item purchased increase both the AOV and LTV.

To really understand the importance of LTV, Starbucks has an LTV per customer of over $14,000. Not bad for a small ticket item. This enables Starbucks to spend more money than their competitors to profitably acquire a customer. This is an older number and is most likely even higher today, as one employee relayed that the AOV is over $9, but it cannot be verified.

Link Clicks – Facebook

A link click in Facebook is limited to clicks of links within the ad that goes to the destination you provided in the ad, for example a landing page on your website. Used in the calculation of CPC (Link).

Lookalike Audience

A lookalike audience is a group of people on a social network that share similar characteristics to a provided list of people (audience). By using demographics in common with people who are known to have interacted with your company a lookalike audience will expand your reach to similar-minded individuals.

It is important that the list provided to seed the lookalike audience is accurate and effective. A typical way to create a lookalike audience is from an existing list of customers or website visitors from a CRM.

Pay Per Click (PPC)

A form of advertising where you pay for each click on an ad. Search engine advertising is the most common form of PPC advertising. Google will show you the estimated cost for each click through is ads manager when you are bidding.

Programmatic Advertising

The buying and selling of ads with software and being able to set parameters on spend, placement, etc. Most online advertising is done through programmatic today. Google and Facebook are examples of programmatic self-service DSP advertising platforms. Google sells its own ad placements in a marketplace.

Quality Ranking – Facebook

For Facebook, the Quality Ranking is across 3 dimensions: quality, engagement, and conversion. The quality ranking evaluates your ads against competing ads for the same audience. Generally speaking the higher the quality ranking the better your ads will perform for less. Remember Facebook makes money from ads and they will show the ads that get the most results so they can make the most money.

You can diagnose underperforming ads with the Ad Relevance Diagnostics available from Facebook.

Quality Score (QS) – Google

Like Facebook, Google determines the quality of your ads. The goal is to display the most effective ads to increase revenue. Google measures how relevant a keyword has been based on data from past auctions. Google assigns a QS from 1 to 10 with 10 being the best.

The QS by itself does not determine ranking for display. The auction-time QS is used for that but is not exposed to advertisers. The best you can do is make sure your keywords are relevant, the copy is good, and your landing pages are helpful. Getting a QS of 10 is going to help, you’ll just never know the true impact.

Reach – Facebook

The number of people who saw your ad at least once. This is different from Impressions, which counts users who have seen your ad multiple times. The metric is estimated by Facebook.

Reach is how many people have been exposed to your message during an ad campaign. It is dependent on your bid, budget, and audience. A larger audience will have a larger reach but have less relevance.

Real-Time Bidding

Bidding for ad placement is done in real-time. You set a budget and who you want to reach. Through complex calculations, algorithms determine which ad to display before loading based on the highest bid and other factors for a given ad unit.

Result – Facebook

How many times your ad achieved the outcome you defined when setting up your Facebook Ad.

Awareness Results

There are two awareness results in Facebook that you can choose: Brand awareness and reach.

Consideration Results

There are a number of different consideration results: Traffic, engagement, app installs, video views, lead generation, and messages.

Conversion Results

There are 3 different conversion results in Facebook: Conversions, catalog sales, store traffic.

Remarketing – Google

Google uses this term instead of retargeting. A method of advertising in Google where you can show ads across the Google Network to people who have interacted with your website or app. Your ads are shown to this specific audience as they browse Google or partner websites.

See Retargeting.


Display ads that that are shown to visitors who have visited your website or app, but left without converting. This is done with the help of tracking pixels. Google and Facebook are the most popular networks to use retargeting with. This enables you to reach an audience that has already engaged with you and has proven to be quite effective.

Return On Ad Spend (ROAS)

Revenue generated for every dollar that is spent on advertising. Generally expressed as a ratio such as 3 to 1. This means for every dollar spent you generated 3 dollars in revenue.

ROAS = revenue / total ad spend

Example: Your total revenue from an ad campaign is $3,000. You spent $1,500 on ads to generate the revenue. ROAS = 3,000 / 1,500 = 2. In other words, your ROAS is 2:1 or you generate $2 for every $1 spent.

Return On Investment (ROI)

Return on investment is the most accurate metric to track. It is also the most difficult. It considers all costs to produce revenue.

ROI = ((revenue – cost of goods sold) / cost of goods sold) * 100

Example: You have total sales of $1,700. Your COGS is $1,200. ROI = ((1,700 – 1,200) / 1,200)  * 100 = (500 / 1,200) * 100 = 41.6 or 41.6% is your ROI.

Supply Side Platform (SSP)

A supply-side platform is the other end of a demand-side platform. It is the platform that publishers use to sell their ad units. Typically these are automated platforms as the expense of manual sales is impractical for a large supply of ad units. Publishers connect their inventories to to multiple ad exchanges, DSPs, and networks at once.

Examples of SSPs are OpenX, PubMatic, and Xandr.

Take Rate

The fee charged by a marketplace for a transaction performed by a 3rd party seller or service provider. The Apple App Store is a good example. Apple’s Take Rate in the App Store is 30% (not always, but not relevant). Assume you purchase an app for $10 from the App Store. Apple collects $3 from the transaction as their take.

This ties to Gross Merchandise Volume in that the total in the example, the $10, is the GMV. This is the amount of money that passes through Apple, with the 30%, or $3 withheld as their fee.

There are some instances in marketing where the take rate is defined as the percent of people who click on an ad.

View Through Rate (VTR)

The number of completed views of a skippable ad vs the number of impressions. In YouTube, many of the advertisements are skippable video ads that are shown at different points in videos. This measures how many are viewed past the skippable time and therefore become paid by the advertising and revenue for the publisher.

(completed skippable views / impressions) * 100

Example: Your ad received 2,500 total impressions. 900 view were completed past the skippable time. VTR = (900 / 2,500) * 100 = 36%.a

Understanding all of the terms used in advertising is important to get the best results. If you need help running your Facebook or Google advertising get in touch.