Advertising economics

Start with what a new customer is worth

If an average customer brings in £1,000 but only £400 is left before overheads, your advertising budget has to fit inside that £400. Revenue alone does not tell you what you can afford to pay to acquire the customer.

Turn customer cost into a lead target

If you are happy to spend £120 to win a customer and you close one in four qualified enquiries, your rough maximum cost per enquiry is £30. That gives you a number to compare against the actual campaign instead of judging performance from clicks.

CPM is only the start

Facebook, Instagram and TikTok commonly price attention around impressions. Google Search is easier to think about in clicks. In either case, the result depends on the whole chain: the advert, click rate, landing-page conversion rate, lead quality and sales close rate.

Do not optimise for cheap leads alone

A £12 enquiry that never buys is more expensive than a £35 enquiry that turns into a profitable customer. Track what it costs to win business and how much value that business produces, not only the cheapest number shown inside the advertising platform.

Know the difference between revenue and contribution

If a £2,000 project costs £1,200 in labour, materials and direct delivery, you do not have £2,000 available to acquire the customer. The useful number is what remains before fixed overheads and profit. This is why two businesses selling similarly priced services can afford very different advertising costs.

Use the numbers to decide when to scale

A campaign should earn the right to receive more budget. First confirm that tracking is working, the enquiries are relevant and the sales process can handle them. Then compare your real customer acquisition cost with the maximum you can afford. If there is a healthy margin, increase spend gradually and watch whether the economics remain stable. If the margin disappears, find the weak point before adding budget. The answer may be better creative, a stronger landing page, tighter targeting, faster follow-up or a higher close rate. Advertising becomes much easier to manage when every decision is tied back to customer value and profit rather than platform vanity metrics.