Introduction
Not every business will thrive with Google Ads. Even with good conversion rates, you can run into trouble if your profit margins are tight or your acquisition cost (CPA) is too high. Let’s walk through a realistic example to show why Google Ads might not always be the right choice.
The iPhone Store Example: Selling at a Discount
Imagine you run a phone store and buy iPhones at $800 each from your supplier. To beat the competition, you decide to sell them for $1,000 instead of the usual $1,200 market price. Your plan is to attract customers with the lowest price—but can this strategy really make your Google Ads campaign profitable? Let’s break it down.
Ad Costs and Conversion Rate
Selling Price: $1,000
Product Cost: $800
Profit Margin (without ads): $200 per sale ($1,000 – $800)
Now, you decide to run a Google Ads campaign with these assumptions:
Average CPC (Cost per Click): $2.50
Conversion Rate: 10% (so 1 in 10 clicks converts into a sale)
This means that for every 10 clicks, you generate 1 sale—but you pay for every click.
Breaking Down the Ad Spend
CPC: $2.50
Clicks per Sale: 10
Ad Spend per Sale: 10 × $2.50 = $25 CPA
So far, so good—$25 per sale doesn’t seem bad, right? But let’s look closer.
Factoring in Overhead Costs
Running a business involves more than just product costs and ads. Let’s add realistic overhead costs to see how they affect profitability:
Hosting & Tools: $10/month
Campaign Manager Fee: $500/month
Total Monthly Overhead: $510
Now, let’s say you allocate $1,500/month for Google Ads.
How Many Sales Will You Make?
Monthly Ad Budget: $1,500
CPA per Sale: $25
Sales from Ads: 1,500 ÷ 25 = 60 sales per month
Profit Breakdown: Are You Making Money?
Revenue per Sale: $1,000
Product Cost per Sale: $800
Ad Spend per Sale (CPA): $25
Profit per Sale (after ads):
$1,000 – $800 – $25 = $175 profit per sale
Total Profit from 60 Sales:
60 × $175 = $10,500 total profit
Now, let’s subtract your monthly overhead costs:
Total Profit: $10,500
Overhead: $510
Final Monthly Profit: $10,500 – $510 = $9,990
Wait—It Still Looks Good… What’s the Catch?
At first glance, this campaign seems profitable. But here’s where things get tricky. Your profit margin is very slim, and any small changes in costs will put you in the red.
Imagine the following happens:
CPC increases from $2.50 to $3 due to increased competition.
New CPA: 10 × $3 = $30 per sale
New profit per sale: $1,000 – $800 – $30 = $170 per sale
Your conversion rate drops slightly to 8% (which is still good for eCommerce).
Now you need 12.5 clicks per sale instead of 10.
New CPA: 12.5 × $3 = $37.50 per sale
New profit per sale: $1,000 – $800 – $37.50 = $162.50 per sale
With such thin profit margins, even minor changes in CPC or conversion rate can wipe out your profits—turning what seemed like a profitable campaign into a break-even or loss scenario.
When Google Ads Might Not Be the Best Option
This example shows that even with a solid conversion rate and reasonable CPA, your profit margins can be too slim to sustain a profitable campaign.
If your business relies on undercutting competitors with the lowest price, Google Ads may not be the right fit—especially in competitive markets where CPCs fluctuate.
Instead, you could explore:
SEO and organic traffic to reduce reliance on paid ads.
Social media engagement to build brand loyalty and attract repeat customers.
Email marketing to nurture leads without additional ad spend.
How We Help You Decide If Google Ads Is Right for You
Before launching a campaign, we conduct a full assessment of your business to determine if Google Ads will deliver profitable results.
Here’s what we evaluate:
CPCs and Conversion Rates: Are your goals achievable within your market’s benchmarks?
Profit Margins: Can your margins absorb ad spend and overhead?
Sustainability: Is your budget enough to test, optimize, and scale?
Alternative Channels: Would organic traffic or other strategies offer better long-term ROI?
If the numbers don’t work, we’ll be upfront and recommend alternative strategies. Our goal is to help you invest wisely and avoid unnecessary losses.
Conclusion
Google Ads can be a great tool—but only if your margins, CPA, and ad costs align. As this example shows, even small fluctuations in CPC or conversion rates can turn profitable campaigns into losses when margins are slim.
We believe in honesty and transparency—if Google Ads isn’t the right fit, we’ll tell you and help you find better strategies for your business.
