Even if only a small percentage (e.g. <2%) click on the and, and then a similar small percentage actually buy anything after clicking, you are still making money so long as the cost-per-conversion (i.e. per sale) comes out low enough that you still make a profit. Spending $3-5 to make a sale in say a pair of shoes that retails at $100 with a profit margin of $30-40 is good business.
People are making huge amounts of money/doing huge amounts of business directly as a result of the ads, and that is not just Google and Facebook, but everyone all the way down to little mom and pop businesses.
When you track things down to the level of sales it very often works (not always - depends on products/business models etc), and that is why people are using online ads. AdWords and Facebook ads would have fizzled out years ago if people were not benefiting from advertising their business
The problem with this kind of accounting is that it doesn't consider whether the ad was really necessary to make a sale in the first place.
With a lot of brand keyword advertising, companies are paying for people to click an ad when they were already looking for your website anyway. So spending $3 on that customer is not a $27 profit but rather a $3 loss....
Lets say it costs $3 to acquire a customer on average. And your margin is $30. That sounds good.
Now do an experiment. Stop your ads.
Do your sales go down 100%? In that cost the $3 cost was definitely justified.
Do your sales go down 50%? That means you actually paid $6 to acquire a customer, not $3. Still sounds like a reasonable deal since you still make $24 profit, but other channels might be more profitable.
Do your sales go down 10%? Then only one in 10 customers actually converted because of the ad, and you are paying $30 to acquire a customer and it would be better to stop the campaign. Google is just showing ads to people that would buy your stuff anyway. (Side note: I think this is a big problem with retargeting. You are paying to show ads to people that are already very likely to buy your stuff -- or even worse, who have bought it already. But conversion rates are really high!)
(To be fair, this is speculation and not based on experience with adwords. My only experience with adwords was a $100 campaign I made a few years back with promotional credit that resulted in no conversions)
While I agree that ads often are very effective, no it is just a $3 cost in some cases. Your ads can cannibalize on tge revenue from other, possibly cheaper, channels.
Even if only a small percentage (e.g. <2%) click on the and, and then a similar small percentage actually buy anything after clicking, you are still making money so long as the cost-per-conversion (i.e. per sale) comes out low enough that you still make a profit. Spending $3-5 to make a sale in say a pair of shoes that retails at $100 with a profit margin of $30-40 is good business.
People are making huge amounts of money/doing huge amounts of business directly as a result of the ads, and that is not just Google and Facebook, but everyone all the way down to little mom and pop businesses.
When you track things down to the level of sales it very often works (not always - depends on products/business models etc), and that is why people are using online ads. AdWords and Facebook ads would have fizzled out years ago if people were not benefiting from advertising their business