Conversion (getting someone to purchase) at scale with ads is not so simple as person sees ad, clicks, and buys. There are many steps along the funnel and sometimes ads can be used in concert with other channels (influencer content, sponsored news articles, etc). Within direct ads you typically have multiple steps depending on how cold or warm (e.g. have they seen or interacted with your content previously) the lead is when viewing the ad and you tailor the ad content accordingly to try to keep pushing the person down the funnel.

Generally if you know your customer persona well and have good so-called product-market-fit, then (1) you will be able to build a funnel that works at scale. So then (2) the question is does the cost to convert a customer / CAC fit within the profit margin, which is much more difficult to unpack.

However, it's worth keeping in mind that digital ad costs are essentially invented by the ad platform. There is a market-type of force. If digital ads become less effective and the CAC goes too high across an industry/sector, the platform may be forced to reduce the cost to deliver ads if the channel just doesn't make enough financial sense for enough businesses.

All this is to say, the system does/can work. Tends to work better for large established companies or startups with lots of funding. In general, not a suggested approach as a first channel for a small startup/small business. Building up effective funnels is incredibly expensive and takes a lot of time in my depressing personal experience.