Marketing & agency
Ad Spend Calculator
Works out what to spend, by working backwards from the customers needed.
Result
Assumes cost per lead stays flat as you scale, which it rarely does. Pushing for more volume in a fixed service area usually raises cost per lead once the best inventory is used up.
Get a Free Business AuditHow the calculation works
The customers required, divided through the conversion chain to the leads and clicks needed, multiplied by the cost at each stage, gives the spend required. Deriving the budget from a target rather than choosing a percentage produces a figure that relates to something.
What moves the number
- Customers needed and the margin each produces.
- Conversion rates at each funnel stage.
- Cost per click or per lead by channel.
- Whether the resulting spend is affordable at that margin.
Where this one goes wrong
If the spend the arithmetic requires exceeds the margin the customers produce, the problem is the conversion chain or the price rather than the budget, and spending more will lose more rather than fixing it. Check that first. Budget also has to allow for a learning period on any new channel, since early performance is worse than steady-state and a budget that cannot absorb that period never reaches the performance it was based on.
Before you quote
- Check the required spend against the margin it produces.
- Allow budget for a channel's learning period.
- Use your own conversion rates, not benchmarks.
Questions
About this calculator
How should an ad budget be set?
By working backwards from the customers needed through the conversion chain to the clicks or leads required and their cost. A budget derived that way relates to a target, where a percentage of revenue relates to nothing in particular.
What if the required spend is unaffordable?
Then the conversion chain or the price is the problem rather than the budget, and spending more will lose more. That is a useful finding rather than a dead end, since it points at the stage that actually needs work.
Should budget allow for learning?
Yes, because early performance on a new channel is worse than steady state while targeting and creative are established. A budget too small to absorb that period never reaches the performance the plan was based on.
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How to use this calculator
- Revenue target ($). Enter your own figure; the page starts at $120,000.
- Average job value ($). Enter your own figure; the page starts at $900.
- Close rate on leads (%). Enter your own figure; the page starts at 28%.
- Cost per lead ($). Enter your own figure; the page starts at $65.
- Gross margin (%). Enter your own figure; the page starts at 45%.
The result updates as you type, so you can try a figure, see what it does to ad spend required, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Revenue target | $120,000 |
| Average job value | $900 |
| Close rate on leads | 28% |
| Cost per lead | $65 |
| Gross margin | 45% |
What comes out
| Result | Value |
|---|---|
| Ad spend required main result | $30,952 |
| Leads needed | 476 |
| Jobs needed | 133 |
| Spend as a share of revenue | 25.79% |
Hitting 120,000 needs 133 jobs from 476 leads: an ad spend of $30,952, or 25.79% of revenue, leaving $23,048 of gross profit.
How sensitive the answer is
Holding everything else steady and changing only revenue target, this is what happens to ad spend required. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Revenue target ($) | Ad spend required |
|---|---|
| $60,000 | $15,476 |
| $90,000 | $23,214 |
| $120,000 example above | $30,952 |
| $180,000 | $46,429 |
| $240,000 | $61,905 |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Revenue target ($)
- A money amount, starting at $120,000.
- Average job value ($)
- A money amount, starting at $900.
- Close rate on leads (%)
- A percentage, between 0 and 100, starting at 28%.
- Cost per lead ($)
- A money amount, starting at $65.
- Gross margin (%)
- A percentage, between 0 and 100, starting at 45%.
What the results tell you
| Result | What it is |
|---|---|
| Ad spend required | The headline result. A money figure. |
| Leads needed | A number. |
| Jobs needed | A number. |
| Spend as a share of revenue | A percentage. |
Attribution is the weak link
Return and cost-per-lead figures depend on knowing which enquiries came from which source, and most home-services businesses do not track that reliably. If the source data is guesswork, so is the return.
Keep going
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