Solved: Calculating Ad ROI in Dallas, TX (Data Inside)

Hi there,

Thanks for reaching out!

Happy to give you some initial thoughts on your situation. It sounds like you're stuck in a really common but frustrating loop. You're spending money on ads, you see some activity, but you can't connect the dots between the spend and actual profit. It makes every marketing decision feel like a gamble.

The good news is there's a much better way to look at this. The problem isn't really about calculating ROI in the way most people think. That's actually the last step in the chain. The real issue, and what we need to solve first, is that you probably don't have a clear, data-backed answer to the most important question of all: "How much is a new customer actually worth to my business over their entire lifetime?"

Once we have that number, everything else starts to fall into place. Justifying spend becomes easy, and figuring out which campaigns are winners becomes a simple matter of maths, not guesswork. Let's get into it.

We'll need to look at this problem from a different angle...

Right now, you're looking at your ad spend and trying to see an immediate return. It's a natural instinct. You spend $100, you want to see more than $100 come back in, and quickly. This leads businesses to obsess over metrics like Cost Per Lead (CPL) or Cost Per Acquisition (CPA) in isolation. The thinking becomes "I need to get my CPL as low as possible."

But this is a massive trap. I call it the tyranny of cheap leads. When your only goal is to lower your CPL, you instruct your ad platforms, either directly or indirectly, to find you the cheapest possible people to click your ad. And who are the cheapest people? They're the ones no one else wants. The people who are least likely to engage, least likely to be a good fit, and almost certainly least likely to ever become a high-value, long-term customer.

You end up with a sales pipeline full of duds. You waste time chasing people who will never buy, or who buy once and then disappear, or who haggle on price and are a general pain to deal with. Your marketing feels "unprofitable" because you're attracting the wrong kind of people. It's like trying to build a premier football team by only signing the cheapest, out-of-contract players. You might fill the roster, but you're not going to win the league.

The mindset shift we need to make is to stop asking "How low can my CPL go?" and start asking "How high a CPL can I afford to pay to acquire a truly great customer?"

This question changes everything. It forces you to think about customer quality, not just lead quantity. It allows you to confidently spend more than your competitors to win the best customers in the market, because you know you will make that money back, and then some, over the long term. This approach is the foundation for building a sustainable, profitable marketing engine, not just a campaign that looks good on a spreadsheet for a week.

To answer this question, we need to get to grips with one central concept: Lifetime Value, or LTV.

I'd say you need to calculate your Lifetime Value (LTV)...

Lifetime Value is the total amount of profit you can expect to make from a single customer over the entire duration of their relationship with your business. It's the true measure of a customer's worth. The calculation itself isn't too complicated, but you need to be honest with your numbers. It breaks down into three core components.

1. Average Revenue Per Account (ARPA): This is the average amount of money a customer pays you in a specific period, usually a month. If you have a subscription business, this is fairly straightforward. If you're a service business, you might need to do some averaging. Look at your total revenue over the last 12 months and divide it by the number of active customers you had, then divide by 12 to get a monthly figure. Don't just guess; get the real data from your accounting software.

2. Gross Margin %: This is crucial, and so many people miss it. You don't care about revenue; you care about profit. Your gross margin is the percentage of revenue left after you've paid your cost of goods sold (COGS) or cost of service. For a service business in Dallas, this would be things like direct labour costs for the job, materials used, etc. It's the profit you make before overheads like office rent, marketing spend, or admin salaries. If you charge a client $1,000 for a job and it costs you $300 in direct labour and materials to deliver it, your gross profit is $700, and your gross margin is 70%.

3. Monthly Churn Rate %: This is the silent killer. Churn is the percentage of customers who stop doing business with you each month. If you start the month with 100 customers and end with 96, your churn rate is 4%. A low churn rate means customers stick around for a long time, dramatically increasing their LTV. A high churn rate means your business is a leaky bucket, and you have to spend constantly just to stand still.

Once you have these three numbers, the LTV calculaton is simple:

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

Let's run through a quick example. Let's say you run a business where the average customer pays you $500 a month (ARPA). Your gross margin is a healthy 80%. And you loose about 4% of your customers each month (Churn Rate).

LTV = ($500 * 0.80) / 0.04
LTV = $400 / 0.04
LTV = $10,000

In this scenario, every new customer you acquire is worth, on average, $10,000 in gross profit to your business over their lifetime. This is a powerful number. This is your North Star.

To really see how important this is, especialy the churn rate, have a look at this. Let's keep ARPA and Gross Margin the same, but just change the precentage of customers you lose each month:

Look at that. Just by reducing your churn from 4% to 2%—meaning you get customers to stick around for twice as long—you've doubled their lifetime value from $10k to $20k. This is why focusing on delivering a brilliant service is actually a marketing activity. But that's a topic for another day. For now, just get these numbers nailed down for your business.

You probably should be aiming for a healthy LTV to CAC ratio...

Okay, so you have your LTV. Let's stick with the $10,000 figure for now. What do you do with it? This is where we connect it back to your advertising spend and finally answer your original question about justifying costs and profitability.

The LTV needs a counterpart: the Customer Acquisition Cost, or CAC. Your CAC is the total average cost to acquire one new customer. This includes everything – ad spend, sales team salaries, marketing software subscriptions, everything. For simplicity, let's start by just looking at the ad spend component.

A widely accepted benchmark for a healthy, sustainable business is an LTV to CAC ratio of at least 3:1. This means for every $1 you spend to acquire a customer, you should expect to get at least $3 back in lifetime gross profit.

So, if your LTV is $10,000, your target CAC should be:

$10,000 / 3 = $3,333

This is your budget. This is your permission slip to spend. You can now confidently spend up to $3,333 to acquire a single new customer and know that you are running a profitable, healthy operation. This single number immediately answers your question about how to "justify marketing spend." You justify it because you know that for every customer you acquire within this budget, you're on track to make a 3x return.

But we can take this one step further to make it even more practical for your campaigns. You don't acquire customers directly from an ad click. You acquire leads, and then your sales process turns those leads into customers. So, you need to know your lead-to-customer conversion rate.

Let's say for every 10 qualified leads you get, you successfully close one of them as a new customer. That's a 10% conversion rate.

Now you can calculate your maximum allowable Cost Per Lead (CPL):

Target CPL = Target CAC * Lead-to-Customer Conversion Rate
Target CPL = $3,333 * 10%
Target CPL = $333

And there it is. Suddenly, that $50 lead from Google Ads or that $150 lead from a targeted LinkedIn campaign in Dallas doesn't seem so expensive anymore, does it? It looks like an absolute bargain. You know you can pay up to $333 for a good quality lead and still be on track for your 3:1 LTV:CAC ratio.

I remember one B2B software client we worked with. They were seeing a CPL of around $22 on LinkedIn for decision-makers, which was higher than their other channels. They were nervous about scaling it. But once we went through this exact process, we found their LTV was over $25,000. Their target CAC was over $8,000. That $22 lead wasn't just profitable; it was an incredibly efficient way to grow their business. We shifted a huge amount of budget into that campaign and they scaled massively. This framework gives you the confidence to make those bold moves.

You'll need a framework to actually use this information...

Knowing your target CAC and CPL is one thing. Putting it to work is the next step. This is how you move from theory to practical, day-to-day management of your paid advertising.

First, you need to audit your current campaigns. Look at each campaign you're running for your Dallas market. What is the actual CAC and CPL for each one? You need to have conversion tracking set up properly for this, of course. Which campaigns are coming in below your new target of $333 CPL? Which ones are way over?

This immediately tells you which campaigns are profitable in the truest sense of the word. A campaign with a $50 CPL that brings in low-quality leads who never convert is infinitely less profitable than a campaign with a $250 CPL that brings in leads who convert at a high rate and become long-term customers. You can now make ruthless decisions based on data, not gut feeling. Pause the campaigns that are bleeding money (i.e., those with a CAC way above your target) and double down on the ones that are working.

Second, this framework helps you evaluate different advertising channels. Too many businesses make the mistake of thinking the goal is to find the one "best" channel. The reality is that different channels attract different types of customers at different costs. Google Search ads, for example, might have a high CPL because you're catching people with immediate, high intent. They are actively searching for a solution to a problem. These leads might convert to customers at a much higher rate.

Meta (Facebook/Instagram) ads might have a lower CPL, but the leads might be less "ready to buy" and require more nurturing. Your conversion rate from lead to customer might be lower. The question is not "Which channel has the lowest CPL?" The question is "Which channel delivers the best LTV:CAC ratio?" You might find that your 'expensive' Google Ads campaign has a 5:1 LTV:CAC ratio, while your 'cheap' Facebook campaign is only at 2:1. In that case, you should be putting as much money as you can into Google first.

We see this all the time. For instance, we ran a campaign for a high-ticket B2B service where LinkedIn Ads delivered leads at an 84% lower cost than their previous efforts, simply because we could target the exact decision-makers they needed to reach. The CPL was still higher than, say, a broad social media campaign, but the quality was so much better that the final LTV:CAC ratio was phenomenal.

Finally, this all links back to your offer. The number one reason campaigns fail is a weak offer. If you're just saying "Contact Us" or "Learn More," your CPL will be high because you're asking for a lot of commitment from the prospect for very little value in return. If you can create a high-value, low-friction offer – like a free audit, a customised quote tool, a short diagnostic, or a valuable guide – you can dramatically lower your CPL, attract better-quality leads, and improve your entire LTV:CAC model. We worked with an eCommerce store launching a new product and by focusing on a compelling lead magnet offer, we generated 1500 leads at just $0.29 each. The offer does the heavy lifting.

This entire process transforms marketing from an expense centre into a predictable, scalable profit centre.

I know that's a lot to take in, so I've detailed my main recommendations for you below in a more structured way. This is the exact process we'd follow.

As you can see, the maths behind this isn't rocket science. The real challenge is in the execution. Accurately tracking conversions, setting up campaigns to optimise for value, finding the right audiences, writing compelling ads, and constantly testing and iterating – that's where the hard work lies and where deep expertise can make a massive difference.

Getting this framework in place is the single most effective thing you can do to solve your problem. It'll give you clarity on what's working, the confidence to invest in growth, and a clear path to making your paid advertising a reliable source of profit for your business.

If you'd like to chat through this in more detail and work out these numbers for your specific situation in Dallas, we offer a free, no-obligation initial consultation where we can review your strategy together. It might be helpful to have an expert pair of eyes on it.

Regards,

Team @ Lukas Holschuh