The CTR and CPC pass bar, and where the thresholds come from — Learn

What this lesson teaches

Derive a CPC ceiling and the CTR that implies from your own numbers
Explain why a pass bar is set before a test rather than after
Read the four diagnostic combinations of CTR and CPC

There is no universal good click-through rate. There is only the click-through rate that, at the price the auction is charging for impressions, produces clicks cheap enough for your contribution to absorb. Two identities are enough to derive everything.

The two identities

(1)  max CPC  =  contribution per order × conversion rate
(2)  CPC      =  CPM / (1,000 × CTR)

Rearranging (2) and substituting (1):
     required CTR  =  CPM / (1,000 × max CPC)

A worked pass bar

contribution per order   £18.82
expected conversion rate   2.0%
→ max CPC = 18.82 × 0.02 = £0.376

observed CPM on the placement   £8.00
→ required CTR = 8.00 / (1,000 × 0.376) = 2.13%

Pass bar for this test:  CPC ≤ £0.376  and  CTR ≥ 2.13%

That 2.13% is not borrowed from anyone's benchmark table. It is what this product's economics require at this placement's price. If the CPM were £14, the required CTR would be 3.72%, and a creative that would have passed comfortably at the cheaper placement now fails — the creative did not get worse; the auction got dearer.

Why the bar is written down first

A threshold set before a test is a decision rule. The same threshold set after the result is a story. Once a number is on the screen, the reasons it might be acceptable multiply, and every one of them is available for free. Writing the bar in advance — with the contribution and conversion assumptions that produced it — converts an argument into a comparison, and makes it possible to notice later that the assumption, rather than the creative, was what was wrong.

Reading the two together

CTR and CPC are diagnostic in combination, not separately.
CTR	CPC	What it indicates
Above bar	Below bar	The creative and the audience agree. Proceed to judging the page and the checkout.
Above bar	Above bar	People want the click but the auction is expensive here. Change placement, geography or time before changing the creative.
Below bar	Below bar	Few click, but cheaply. Often a broad, inattentive audience. Narrow it before rewriting anything.
Below bar	Above bar	The offer is not landing with this audience. This is the honest kill signal for a creative-and-audience pair.

A high CTR is not a result

Clicks are an intermediate measurement, used because orders are too rare to judge quickly. A creative can achieve an excellent CTR by promising something the page does not deliver, and it will show up as a good test and a bad month. Always carry the pass bar through to cost per order before declaring a winner.

Figures in this lesson are illustrative inputs chosen so the arithmetic can be checked. They are not measurements. What FlowFinds Solutions actually measures is published, with its artifacts, in research.