Solved: High Cost Per Conversion on Ad Spend

Hi there,

Thanks for reaching out! It sounds like you're in a tough spot, but honestly, it's a very common one, especially in competitive markets and at the kind of ad spend you're managing. A rising Cost per Conversion can be alarming, but it's often a symptom of a deeper issue rather than the problem itself. I'm happy to give you some initial thoughts and a bit of a roadmap based on my experience with similar accounts. The answer isn't just about tweaking a few bids or changing an image; it's about fundamentally rethinking the machine you've built.

The first thing we need to fix is your metric...

Right now, you're fixated on a $250 Cost per Conversion. The immediate reaction is "that's too high." But is it? The honest answer is: it's impossible to know. This is the first and most common mistake I see. Businesses obsess over the cost of the click or the lead (Customer Acquisition Cost, or CAC) without ever truly understanding the value of what they're acquiring.

The real question isn't "How low can my CPL go?" but "How high a CPL can I afford to acquire a truly great customer?" The answer to that is Lifetime Value (LTV). Until you know this number, you are flying blind, making decisions based on fear rather than data. A $250 lead that converts to a customer worth £20,000 is a bargain. A $25 lead that converts to a customer worth £100 is a disaster.

Let's calculate it. We need three simple figures from your business:

• Average Revenue Per Account (ARPA): What's the average amount a customer pays you per month?
• Gross Margin %: After your cost of goods sold (COGS), what percentage of that revenue is profit? For SaaS, this is often high (70-90%). For services, it might be lower.
• Monthly Churn Rate %: What percentage of your customers do you lose each month?

The formula is simple but powerful:

LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

Once you have your LTV, a healthy and sustainable business model typically aims for an LTV to CAC ratio of at least 3:1. This means you can afford to spend up to one-third of your customer's lifetime value to acquire them. This simple calculation changes everything. It transforms your advertising from a cost centre into a predictable growth engine.

To make this tangible, I've built a simple calculator for you. Play with the sliders to see how small changes in your business model can dramatically change how much you can afford to spend on ads.

Now, with this context, your $250 CPL might be perfectly fine, or it might be a five-alarm fire. But at least now you know how to tell the difference. This is the foundation upon which all successfull advertising campaigns are built.

I'd say your ICP is a Nightmare, Not a Demographic...

Once you understand your numbers, the next domino to fall is your Ideal Customer Profile (ICP). I'd bet my last pound that your current ICP is a sterile, demographic-based definition. Something like "Companies in the tech sector with 50-200 employees" or "Marketing managers aged 30-45."

This tells you absolutely nothing of value. It leads to generic ads with generic messaging that speaks to no one. It's the reason your ads feel like shouting into a void. To stop burning cash, you must redefine your customer not by who they are, but by the pain they are in. You need to become an expert in their specific, urgent, expensive, career-threatening nightmare.

Your Head of Sales client isn't just a job title; he's a leader staring at a flat pipeline, terrified of missing his quarterly target and facing an angry board. For a cybersecurity SaaS, the nightmare isn't 'needing better security'; it's 'the CTO waking up in a cold sweat, imagining their company's name in a headline next to the words "data breach".' Your ICP isn't a person; it's a problem state.

When you define your customer this way, everything changes. Your targeting becomes sharper. Your ad copy writes itself. Your offer becomes irresistible. You stop selling features and start selling a resolution to their pain.

Do this work first. Interview your best customers. Find out what kept them up at night before they found you. Once you have isolated that nightmare, you can find the niche podcasts they listen to, the industry newsletters they actually open, the SaaS tools they already pay for. This intelligence isn't just data; it's the blueprint for your entire targeting strategy. You have no business spending another pound on ads until this is crystal clear.

You'll need to delete the "Request a Demo" button...

Now we arrive at the most common failure point in B2B advertising: the offer. I'd be willing to bet your primary Call to Action (CTA) is "Request a Demo," "Book a Call," or "Contact Sales." This is, frankly, the most arrogant CTA ever conceived.

It presumes your prospect, a busy decision-maker whose problem you've just articulated, has nothing better to do than schedule a meeting to be sold to. It is high-friction, low-value, and instantly positions you as just another commodity vendor clamouring for their time. This is a massive contributor to your high conversion cost. You're asking for marriage on the first date.

Your offer's only job is to deliver a moment of undeniable value—an "aha!" moment that makes the prospect sell themselves on your solution. You must solve a small, real problem for them for free to earn the right to solve their entire problem for a price. We do this ourselves by offering a free, no-obligation strategy session where we audit failing ad accounts. It provides instant value and demonstrates our expertise far more effectively than any sales pitch ever could.

If you're a SaaS founder, the gold standard is a free trial or a freemium plan (with no credit card required). Let them use the actual product. Let them feel the transformation. For an agency, it's a free, automated audit. For a data platform, a free 'Data Health Check'. You must bottle your expertise into a tool or asset that provides value instantly. This simple switch can cut your cost per conversion in half, because you're giving before you ask.

You probably should target conversions, not awareness...

Now that we have the strategy straight (LTV > CAC), the ICP (pain-based), and the offer (high-value, low-friction), we can finally talk about the ads themselves. Here's an uncomfortable truth: if you are running campaigns with objectives like "Reach" or "Brand Awareness," you are actively paying the world's most powerful advertising machine to find you the worst possible audience for your product.

When you give the algorithm that command, it does exactly what you asked: "Find me the largest number of people for the lowest possible price." It seeks out users who are least likely to click, engage, or buy, because their attention is cheap. You are paying to find non-customers.

For a business like yours, awareness is a byproduct of performance, not a prerequisite for it. You need to switch your campaigns to optimise for conversions further down the funnel—leads, signups, trials, purchases. This forces the algorithm to do the hard work of sifting through millions of users to find the ones who exhibit behaviours similar to your existing customers. It's more expensive per impression (your $10-$20 CPM is perfectly normal for conversion campaigns), but infinitely more effective at finding people who will actually pay you.

Within your conversion campaigns, you need a structured approach to targeting. A lot of people just throw a bunch of random interests into an ad set and hope for the best. I'd recomend a tiered approach based on funnel depth. The further down the funnel an audience is, the more valuable they are, and the better they will perform.

For new accounts, you start at the top (ToFu) with detailed targeting to gather data. But as soon as you have enough conversions (ideally 100+ of a specific event), you should be building lookalike audiences from your highest-value sources (e.g., a lookalike of your actual customer list, not just website visitors) and heavily retargeting your BoFu audiences. These will almost always deliver a lower cost per conversion than broad, cold interests.

I've detailed my main recommendations for you below in a more actionable format:

Managing a £40-50k monthly ad spend is no small task for one person, especially in a competitive space. The points above aren't just minor tweaks; they represent a fundamental strategic shift in how you approach paid acquisition. It's about moving from simply 'running ads' to building a predictable, scalable customer generation system. It requires a deep understanding of not just the ad platforms, but business metrics, customer psychology, and direct response copywriting.

Implementing this correctly takes expertise and time. For instance, one of our clients, a medical job matching SaaS, was struggling with a £100 CPA. After we implemented a strategic overhaul of their campaigns, we were able to reduce their CPA to just £7. That's the kind of transformation that's possible when the underlying strategy is sound.

If you feel this is a bit overwhelming or would just like a second pair of expert eyes on your account to identify the biggest opportunities, we offer a completely free, no-obligation strategy session. We'd spend 20-30 minutes going through your campaigns together, and I can guarantee you'll come away with several actionable insights you can implement immediately.

Either way, I hope this detailed breakdown has been genuinely helpful and gives you a clear path forward.

Regards,

Team @ Lukas Holschuh