TLDR;
- Stop asking "how much should I spend?" The right question is "how much can I afford to pay for a customer?" This changes everything.
- London's high ad costs aren't the problem; they're a symptom of a massive opportunity. Your budget needs to reflect the value of that opportunity, not just the cost.
- Your budget shouldn't be a random number plucked from the air. You must calculate it from the bottom up, starting with your Customer Lifetime Value (LTV).
- Focus your limited budget on high-intent keywords that capture people actively looking to buy, not just browse. Think "emergency plumber Canary Wharf" not "how to fix a leaky tap".
- This article includes two interactive calculators to help you determine your LTV and build a realistic starting budget based on your actual business goals.
Trying to set a Google Ads budget in London feels a bit like trying to buy a pint in Mayfair – you know it’s going to be expensive, you're just not sure *how* expensive, and you’re terrified of getting ripped off. The high Cost Per Click (CPC) here is a real barrier for a lot of businesses, and it's easy to burn through thousands of pounds with absolutely nothing to show for it.
But here's the truth most agencies won't tell you: fixating on the high CPC is the wrong way to think about it. The problem isn't the cost; it's the approach. You're asking the wrong question. Instead of guessing a budget and hoping for the best, you need a framework that builds a budget based on the actual value a customer brings to your business. Let's scrap the guesswork and build a budget that actually works for the London market.
Why is London so bloody expensive for Google Ads?
First, let's get this out of the way. Yes, ads in London are expensive. It's not your imagination. You're competing in one of the world's biggest economic hubs. For lucrative sectors like finance, tech, legal, and high-end property, you have hundreds of well-funded companies all bidding on the same valuable keywords, targeting the same decision-makers in the City or Canary Wharf. It’s a simple case of supply and demand.
Think about it: a single client for a law firm in Holborn could be worth tens of thousands of pounds. A new SaaS subscriber for a FinTech startup in Shoreditch could have a lifetime value of £10,000 or more. These businesses can afford to pay £50, £80, even over £100 for a single click because they've done the maths. They know what a customer is worth. The high CPC isn't a flaw in the system; it's a reflection of the immense value of the prize. If you want to compete, you need to start thinking like they do.
Stop Asking "What's My Budget?" Start Asking "What's a Customer Worth?"
This is the most important mindset shift you need to make. A budget is an arbitrary number. A customer's value is a hard metric you can build a strategy around. This metric is called Lifetime Value (LTV). It's the total profit you can expect to make from a single customer over the entire time they do business with you. Once you know this number, everything else starts to fall into place.
To calculate it, you need three pieces of information:
- Average Revenue Per Account (ARPA): How much revenue does an average customer bring in each month?
- Gross Margin %: What's your profit margin on that revenue? (Revenue - Cost of Goods Sold).
- Monthly Churn Rate %: What percentage of customers do you lose each month?
Once you have those, the calculation is simple. Use the calculator below to figure out your LTV. This isn't just a vanity metric; it is the foundation of your entire advertising strategy.
Interactive LTV Calculator
How to Figure Out Your Target Customer Acquisition Cost (CAC)
See that number? In our example, it's £10,000. That is the truth. That's what one good customer is worth to this business. Now, the expensive clicks in London don't seem so intimidating, do they?
The next step is to decide how much of that LTV you're willing to spend to acquire a customer. This is your Customer Acquisition Cost (CAC). A healthy, sustainable benchmark for many businesses is a 3:1 LTV to CAC ratio. This means you aim to make back at least £3 in lifetime value for every £1 you spend on acquisition.
LTV / 3 = Target CAC
So for our example business with a £10,000 LTV, they can afford to spend up to £3,333 to acquire a single new customer and still have a very healthy business. Suddenly, paying £60 for a click that might turn into a lead doesn't seem so crazy. It's a calculated investment. This is the maths that unlocks aggressive, intelligent growth and is the foundation of a proper framework for ROI in London.
Building Your Budget From the Bottom Up, Not Top Down
Now we have a target CAC, we can finally build a realistic budget. We're going to work backwards from your goal. Instead of saying "I have £2,000 to spend," we're going to say "I need 5 new customers this month, what budget do I need to achieve that?"
This requires you to know your sales funnel conversion rates. If you don't know them, you'll need to make some educated guesses to start and then refine them as you gather data. The key stages are:
- Lead-to-Customer Rate: What percentage of qualified leads become paying customers?
- Click-to-Lead Rate: What percentage of people who click your ad and visit your landing page become a qualified lead (e.g., fill out a form, book a call)?
For a typical London B2B service, a 10% lead-to-customer rate and a 5% click-to-lead rate are reasonable starting points. Let's do the maths:
To get 5 customers, you'd need 50 leads (5 / 0.10).
To get 50 leads, you'd need 1,000 clicks to your website (50 / 0.05).
If your average CPC for targeted keywords is, say, £5, your required monthly budget is £5,000 (1,000 clicks * £5).
Now you have a real number, based on your goals, not on guesswork. Use the calculator below to plug in your own numbers and see what your starting budget should be.
Bottom-Up Budget Calculator
How do I find keywords I can actually afford?
This is where strategy beats budget. You can't afford to compete on broad, expensive keywords like "IT support". You'll get destroyed. The key is to focus relentlessly on *intent*. You want to find the keywords people type into Google when they have their wallet out, ready to solve an urgent, expensive problem.
This means going after long-tail keywords that are highly specific. Instead of competing with every IT firm in the country, you focus on your patch. This is how, even with a smaller budget, you can dominate Google for your specific niche. It's about being a big fish in a small pond.
Here’s a look at the difference:
| Low Intent (Expensive & Broad) | High Intent (Cheaper & Specific) |
|---|---|
| "accountant" | "chartered accountant for tech startups london" |
| "commercial cleaning" | "office cleaning service city of london quote" |
| "SaaS development" | "hire b2b saas development agency uk" |
The high-intent keywords get much less traffic, but the quality is exponentially higher. Every click is from someone who has a specific need that you can solve. This approach reduces wasted spend and gives you a much better chance of turning clicks into actual customers. Getting this right is the core of how you stop wasting money on Google Ads in London.
So what's a realistic starting budget for a London business?
After all that, you probably still want a number. So here it is: for most B2B or high-value service businesses in London, a realistic 'data-gathering' budget starts at around £1,500 - £3,000 per month.
Let me be clear: this initial budget is not necessarily to get a flood of customers on day one. It's an investment in data. You're paying Google to learn what keywords convert, what ad copy works, and what your true CPC and conversion rates are. Without this data, you're flying blind. After 2-3 months of gathering this data, you can then use the bottom-up calculator with your *actual* numbers to set a proper 'growth' budget, which might be closer to the £5k-£10k+ mark we calculated earlier.
Trying to start with less than £1,500 a month in a competitive London market is often a false economy. You won't get enough clicks to gather data quickly, the process will drag on for months, and you'll likely give up before you see any results. For any UK startup, having a solid plan is vital, and you can learn more in our complete guide to Google Ads for UK startups.
My Recommended Framework for London Ad Budgeting
If you just skimmed to the end, here is the entire process laid out for you. This is the framework we use for our clients to build campaigns that are profitable, even in the cut-throat London market.
| Step | Action | Why It's Important |
|---|---|---|
| 1. Calculate LTV | Use the LTV calculator above to determine the total profit value of one customer. | This is your north star. It tells you what you can afford to spend and anchors your entire strategy in value, not cost. |
| 2. Define Target CAC | Apply a 3:1 LTV:CAC ratio (or whatever your business can sustain) to set your maximum spend per customer. | This ensures profitability from the start and gives you a clear pass/fail metric for your campaigns. |
| 3. Research High-Intent Keywords | Identify long-tail, specific keywords that signal a user is ready to buy now. Focus on geographic and service-specific terms. | This is how you avoid burning cash on broad, low-quality traffic and find profitable niches to compete in. |
| 4. Build Bottom-Up Budget | Use your customer goals and estimated conversion rates in the budget calculator to determine your required starting ad spend. | This gives you a budget rooted in your business objectives, not a random number. |
| 5. Launch & Measure | Run your campaigns with a 'data-gathering' budget (£1.5k-£3k) for at least 60-90 days. Track everything. | You're buying real-world data to replace your estimates. This is the most important phase. |
| 6. Optimise & Scale | Once you have real data, refine your keyword bids, ad copy, and landing pages. Re-calculate your budget for growth. | This is how you improve your ROI over time and scale your ad spend confidently and profitably. |
This seems complicated. Can I just hire someone?
Honestly, yes. What I've outlined above is a strategic framework. Executing it properly takes time, expertise, and a lot of careful analysis. You have to do the keyword research, write compelling ad copy, build high-converting landing pages, and constantly monitor and optimise the campaigns. It's a full-time job.
For many founders and marketing managers in London, their time is better spent running the business than becoming a full-time Google Ads expert. Working with a specialist can shortcut the steep learning curve and avoid the costly mistakes that most people make when they start out.
If you've read this far and feel a bit overwhelmed but see the logic in this approach, we should probably have a chat. We offer a free, no-obligation strategy session where we can go through your numbers and build out a realistic plan for you. There's no hard sell, just straightforward advice based on our experience running profitable campaigns in the most competitive postcodes in the UK.
