Solved: Performance Budget in Southampton (A Step-by-Step Fix)

Hi there,

Thanks for reaching out! It's good that you're asking this question. Most people just pluck a number out of thin air for their marketing budget, spend it, see no return, and then decide "ads don't work". The truth is, determining the right budget, especially for a local business in a place like Southampton, isn't about guesswork. It's about maths, and understanding what a customer is actually worth to you.

I'm happy to give you some of my initial thoughts and a framework for how you should be thinking about this. Forget about finding an "ideal" number for now. We need to work backwards from your business goals to figure out what you can afford to spend to get a new customer, and still make a healthy profit. Once you know that number, setting a budget becomes a lot more straightforward.

We'll need to look at your numbers, not your competitor's...

The biggest mistake I see businesses make is looking at what their competitors are doing and trying to copy them. You have no idea what their margins are, what their sales conversion rates are, or what their customer lifetime value is. Their "ideal budget" could bankrupt you, or it could be so conservative that you're leaving a huge amount of business on the table. Your budget has to be built on your business metrics. The most important metric of all, and the one most businesses never bother to calculate, is Lifetime Value (LTV).

The whole game isn't about getting the cheapest possible leads. It's about understanding how much you can afford to pay to acquire a truly great customer. Once you know what a customer is worth over their entire relationship with you, you can make much smarter decisions about how much you're willing to invest upfront to get them. A high CPL (Cost Per Lead) might seem scary, but if that lead turns into a customer worth thousands of pounds over the next few years, it's not expensive at all; it's a bargain.

This is the math that unlocks proper growth. It stops you from making emotional decisions based on daily spend and lets you operate from a position of financial clarity. So, let's work out your LTV.

You need three bits of information:

1. Average Revenue Per Account (ARPA): What's the average amount a customer pays you per month or per year? Be realistic here.
2. Gross Margin %: After the direct costs of servicing that customer, what percentage is left as profit? If you charge £1,000 for a job and it costs you £300 in materials and labour, your gross margin is 70%.
3. Monthly Churn Rate %: What percentage of your customers do you lose each month? If you have 100 customers and on average 3 leave each month, your churn rate is 3%.

The formula is simple: LTV = (ARPA * Gross Margin %) / Monthly Churn Rate

I've built a little calculator for you below so you can play with the numbers and see for yourself. Adjust the sliders to match your own business metrics and see what your estimated LTV is. This single number is the foundation of your entire performance marketing budget.

I'd say you now need to work backwards...

Now that you have a rough idea of your LTV, we can work out your target Customer Acquisition Cost (CAC). This is the total amount you can spend on marketing and sales to acquire one new customer. A healthy, sustainable ratio for many businesses is a 3:1 LTV to CAC ratio. This means for every £3 of lifetime profit a customer brings in, you can spend £1 to get them. For more agressive growth, you might push this to 2:1, but 3:1 is a safe place to start.

So, if your LTV is £9,375, your target CAC is £3,125.

That seems like a huge number, right? But remember, that's the *total* cost. The next step is to break that down into a target Cost Per Lead (CPL). To do that, you need to be brutally honest about your sales process. How many qualified leads does it take for you to close one new customer? If you speak to 10 potential clients and sign one of them up, your lead-to-customer conversion rate is 10%.

So the formula is: Target CPL = Target CAC * Lead-to-Customer Conversion Rate

Using our example: Target CPL = £3,125 * 10% = £312.50.

Suddenly, seeing a £50 or £100 cost per lead from a Google Ad doesn't seem so terrifying. It looks like an absolute bargain, because you know that, on average, every 10 of those leads will turn into over £9,000 of lifetime profit. This is how you build a predictable, scalable customer acquisition machine. It all comes from knowing your numbers.

Here's another calculator to help you connect your LTV to a tangible CPL you can aim for in your ad campaigns.

You probably should think about where your customers are...

Okay, so you know how much a lead is worth to you. Now, where do you find them? This is where you decide on the ad platform. Your choice will massively impact your budget and results. The most important question you need to answer is: Are people in Southampton actively searching for a solution to the problem I solve?

Your answer to this question determines your whole strategy.

A) Yes, they are actively searching.
If you're an electrician, a roofer, a local accountant, or any service where people have an urgent, immediate need, then they are going to Google and typing things like "emergency electrician southampton" or "accountant near me". In this case, your best bet is almost always Google Search Ads. You're not trying to create demand; you're capturing existing demand. You're putting your business in front of someone at the exact moment they need you. This is called 'high-intent' traffic, and it's usually the most effective place to start spending your marketing budget. The cost per click can be higher, but the leads are often much better quality because they're already looking for what you offer.

B) No, they aren't actively searching.
If you sell something innovative, a luxury item, or a service people don't know they need yet, then you have to create demand. No one is Googling for a "hand-crafted artisanal dog biscuit subscription box" if they've never heard of such a thing. In this case, you need to use platforms like Facebook, Instagram, or even LinkedIn (if you're B2B). Here, you're interrupting their scrolling with an ad that grabs their attention, highlights a problem they might have, and presents your product as the solution. This is 'low-intent' traffic. It's often cheaper to reach people this way, but you have to work a lot harder with your ad creative and messaging to convince them to care. It requires a different approach, often focused on building an audience over time rather than getting immediate sales.

To make this clearer, here is a flowchart to help you decide.

You'll need to set realistic expectations...

Now let's talk about what you can expect in terms of cost. These are very rough ballpark figures based on our experience with hundreds of campaigns, but they should give you a general idea. For a local service business in Southampton, you're likely in a less competitive market than London, but more competitive than a small village. So your costs will probably fall somewhere in the middle of these ranges.

We're currently running a campaign for an HVAC company in a fairly competitive area, and they're seeing costs of around $60 per lead from Google Ads. On the other hand, we've run ads for childcare services where the cost per signup was around $10. Our best performing local service campaign was for a home cleaning company which got leads for just £5 each. As you can see, it varies massively by industry.

For B2B, the costs are almost always higher. I remember one B2B software client we worked with on LinkedIn Ads, and we were able to get their cost per lead down to around $22, which they were thrilled with because their customer LTV was enormous. For eCommerce, you should be looking at ROAS (Return On Ad Spend) rather than CPL. We have clients seeing anything from a 4x to a 10x ROAS, but a good starting goal is to aim for a 3x return.

Here’s a chart to give you a visual idea of the typical Cost Per Lead (CPL) ranges you might expect across different platforms and business types. This is based on real client data from developed countries like the UK.

Your first budget is for buying data, not profit...

So how much should you actually spend to start? My advice is always the same: you need to set a budget that's big enough to get you data, and fast. Starting with £10 a day is a waste of time. The ad platforms' algorithms need data to learn who your ideal customer is. If you're drip-feeding them tiny amounts of money, it'll take months to get anywhere.

I usually recommend a starting ad spend of £1,000 to £2,000 for the first month. I know that might sound like a lot, but you have to reframe your thinking. This initial budget is not an investment you expect an immediate return on. It's an investment in data. You are paying to learn:

• Which ad platform works best for your business.
• Which audiences respond to your offer.
• Which ad copy and creative gets the most clicks.
• What your real-world CPL is going to be.

After that first month, you should have enough data to know what's working and what isn't. Then, you can turn off the stuff that's failing and double down on the winners. That's when you start optimising for a return on investment. But if you don't spend enough to get statistically significant results in that first phase, you'll just be guessing. You need to be prepared to potentially "lose" that first month's budget in exchange for invaluable market intelligence that will make all your future spending much more profitable.

Think about it like this: your budget needs to be large enough to generate at least 50-100 conversions (leads, sales, etc.) in a short period. The ad platforms use these conversion events to learn and optimise. If your target CPL is £20, you need £1,000 - £2,000 to get those 50-100 data points. It's simple maths.

But first, we'll need to look at your website...

I have to be brutally honest here. You can have the best ad campaign in the world, with a perfectly calculated budget and brilliant targeting, but if you send that expensive traffic to a poor website, you are just setting your money on fire. Your website is the most critical part of the entire funnel. Before you spend a single pound on ads, you MUST ensure your website is built to convert visitors into leads or customers.

I haven't seen your site, but here are the most common failings I see:

• No Clear Call-to-Action (CTA): What is the ONE thing you want a visitor to do? Is it to fill out a form? Call a number? Schedule a consultation? This needs to be obvious and repeated throughout the page. Don't give them ten options; give them one.
• Weak Copywriting: Your website shouldn't just describe what you do. It needs to speak directly to your ideal customer's pain points and present your service as the undeniable solution. It should be persuasive, not just informative. This is a skill and professional copy can go a long way.
• Lack of Trust Signals: Why should a stranger trust you with their money or their business? Your site needs customer testimonials, reviews, case studies, photos of your team, a physical address in Southampton, and clear contact details. Without these, people will feel uneasy and leave.
• Poor Mobile Experience: More than half of all web traffic is on mobile phones. If your site is slow to load, difficult to navigate, or has text that's too small to read on a phone, you'll lose a huge chunk of your visitors before they've even had a chance to see what you offer.

Fixing your website should be your number one priority. A 1% improvement in your website's conversion rate is far more valuable than a 10% improvement in your ad's click-through rate. It affects every single person who visits your site, regardless of where they came from.

I've detailed my main recommendations for you in a table below to give you a clear, actionable plan to follow.

This is why it's not as easy as it looks...

As you can see, setting a performance marketing budget that actually works is a lot more involved than just picking a number. It requires a deep understanding of your own business finances, a clear strategy for reaching your target audience, and a ruthless commitment to testing and optimisation.

This is where expert help can make a huge difference. An experienced agency or consultant has been through this process hundreds of times. We know the benchmarks, we know what creative approaches work for different industries, and we know how to interpret the data to make smart decisions quickly. We can help you avoid costly mistakes and get to profitability much faster than you would on your own.

The framework I've outlined for you is exactly how we approach new client campaigns. We start with the business case first, building the strategy on a solid foundation of data, before we even think about writing an ad.

I hope this detailed breakdown has been helpful and given you a new way to think about your marketing budget. If you'd like to chat through your specific situation and get a second pair of eyes on your numbers and strategy, we offer a completely free, no-obligation consultation call. We can review your business goals and give you some tailored advice on the best way forward.

Regards,

Team @ Lukas Holschuh