Wall Street Prep

Click Through Rate (CTR)

Guide to Understanding the Click Through Rate (CTR)

Learn Online Now

Click Through Rate (CTR)

How to Calculate Click Through Rate (Step-by-Step)

The click through rate, or “CTR”, is a common metric used to track the performance of digital ads.

The CTR is the total number of users that “clicked” the ad divided by the total number of users that “saw” the ad.

Put differently, the CTR reflects the total number of clicks on an ad divided by the total impressions of the ad across a given time period.

There are three distinct variations of the CTR:

Organic CTR
  • CTR from organic search engine result pages, namely Google Search
Email CTR
  • CTR from email activities such as newsletters and email marketing campaigns
Pay-Per-Click (PPC) CTR
  • CTR from pay-per-click (PPC) ads

Search engines tend to attach a premium on sites with a high click-through rate (CTR), so the metric is of particular importance for pay-per-click (PPC) models.

Click Through Rate Formula (CTR)

The formula for calculating the click-through rate is as follows.

Click-Through Rate (CTR) = Total Clicks ÷ Total Impressions
  • Total Clicks on Ad → Number of Clicks Received
  • Total Impressions → Number of Times the Ad (or Link) is Shown

For instance, if a website had 50 clicks and 1,000 impressions, then the CTR equals 5%

  • CTR = 50 ÷ 1,000 = 5%

How to Interpret Click Through Rate (CTR)

The CTR on each ad is tracked to perform side-by-side comparisons to other ads, which helps establish which ad the target market is most receptive to.

  • High Click Through Rate → Positive Indication (Highly Relevant Ads)
  • Low Click Through Rate → Negative Indication (Less Relevant Ads)

A high CTR ad implies that users were intrigued by the content of the ad (and thus clicked on it).

A high CTR implies the company (and ad agency) is close to achieving the maximum traffic potential to the company site, directly increasing the odds of conversions due to the increased traffic.

On the other hand, a low CTR indicates that users either saw the ad and chose not to click on it, or simply ignored it.

Therefore, companies strive to improve their CTR so that the number of users clicking on their ads increase, which directly coincides with higher search rankings (and indirectly, more revenue via higher conversion rates).

CTR is a relative measure, meaning that it is not only industry-dependent but also affected by the set of keywords targeted.

The more competitive the industry (and the associated targeted keywords), the lower the average CTR is likely to be – albeit successful companies with optimal marketing strategies that have been perfected over time may still possess a high CTR.

For those established companies, a high CTR in a very crowded market represents a competitive edge, especially in modern times where digital marketing is of high importance.

How to Improve the Click Through Rate

In order to improve the click-through rate, a company should first develop a clear understanding of its target customer profile.

Some example questions to ask include the following:

  • What commonalities are shared among our most receptive customers with the lowest churn?
  • What is the goal of the customer when searching for the keyword?
  • What is the problem faced by the customer that our product/service can fix?
  • How can we make our solution more appealing to our customers (i.e. address their pain points)?
  • Which specific terms would “catch the attention” of our customers?

However, it is important to keep in mind that the ultimate end goal is driving conversions (i.e. sales).

Even if it leads to a click, intentionally misleading (i.e. deceptive) headlines ultimately bring no benefits if they do not ultimately drive the customer to complete a purchase.

Not to mention, ad placements can be costly, especially for the more crowded areas, so it is not cost-effective to pay for clicks that will not drive conversions.

Click Through Rate Calculator (CTR) – Excel Model Template

We’ll now move to a modeling exercise, which you can access by filling out the form below.

Submitting ...

Ad Click Through Rate Calculation Example

Suppose a company’s ad in the past week had a total of 10,000 impressions with a total of 200 clicks.

  • Total Impressions = 10,000
  • Total Clicks = 200

If we enter those inputs into the formula from earlier, we arrive at a click-through rate (CTR) of 2%.

  • CTR = 200 / 10,000 = 2%

Click Through Rate (CTR) Calculator

Step-by-Step Online Course

Everything You Need To Master Financial Modeling

Enroll in The Premium Package: Learn Financial Statement Modeling, DCF, M&A, LBO and Comps. The same training program used at top investment banks.

Enroll Today
Comments
guest
0 Comments
Inline Feedbacks
View all comments
Learn Financial Modeling Online

Everything you need to master financial and valuation modeling: 3-Statement Modeling, DCF, Comps, M&A and LBO.

Learn More
X

The Wall Street Prep Quicklesson Series

7 Free Financial Modeling Lessons

Get instant access to video lessons taught by experienced investment bankers. Learn financial statement modeling, DCF, M&A, LBO, Comps and Excel shortcuts.