TLDR;
- Stop asking "how much should I spend?" and start asking "how much can I afford to acquire a customer?". The answer lies in your Customer Lifetime Value (LTV).
- Your Ideal Customer Profile (ICP) isn't a demographic. It's a specific, urgent, expensive problem. Target the pain, not the person.
- The "Request a Demo" button is killing your conversions. Your offer must provide instant, undeniable value for free to earn the right to ask for a sale.
- Forecasting isn't about predicting the future. It's about creating a range of scenarios (best, realistic, worst) based on your LTV and funnel metrics to make informed decisions.
- This article includes two fully interactive calculators to help you determine your LTV and forecast your campaign results, plus a visual flowchart for reverse-engineering your budget.
Most founders approach paid ad budgeting with the wrong question. They ask, "How much should I spend?" as if there's a magic number that unlocks growth. They pick a round figure like £1,000 or £5,000, throw it at a platform, and hope for the best. This is a recipe for wasted cash and frustration. The real question isn't how much you *should* spend, but how high a cost you can *afford* to acquire a customer and still be wildly profitable. The answer changes everything, and it starts not with your ad account, but with your business maths.
This is the framework we use to build scalable, predictable ad campaigns. It's not about guessing. It's about building a machine where you know that for every £1 you put in, you can reliably expect £3, £5, or even £10 back over time. It requires some upfront work, but it's the only way to move from gambling on ads to investing in growth.
So, who are you actually selling to? (Hint: It’s not a job title)
Before you even think about platforms or budgets, you have to get this right. Forget the sterile, demographic-based profile your last marketing hire made. "Companies in the finance sector with 50-200 employees" tells you nothing of value and leads to generic ads that speak to no one. To stop burning cash, you must define your customer by their pain. Their nightmare.
You need to become an expert in their specific, urgent, expensive, career-threatening problem. Your Head of Engineering client isn't just a job title; she's a leader terrified of her best developers quitting out of frustration with a broken workflow. For a legal tech SaaS, the nightmare isn't 'needing document management'; it's 'a partner missing a critical filing deadline and exposing the firm to a malpractice suit.' Your ICP isn't a person; it's a problem state. Once you've isolated that nightmare, your ads practically write themselves and your targeting becomes incredibly precise. It's the foundational layer of any successful campaign, and the first step in building a framework for ROI.
Once you've defined this pain, you can find them. Where do they go to solve this pain? What niche podcasts do they listen to on their commute, like 'Acquired'? What industry newsletters do they actually open, like 'Stratechery'? Are they members of the 'SaaS Growth Hacks' Facebook group? This intelligence is the blueprint for your entire targeting strategy. Do this work first, or you have no business spending a single pound on ads.
How high a CPL can you afford? The LTV calculation that unlocks your budget
The single most important metric for budgeting is Customer Lifetime Value (LTV). It tells you what a customer is actually worth to your business in profit over their entire relationship with you. Once you know this, you can stop obsessing over cheap leads and start focusing on acquiring high-value customers, even if they cost more upfront. Many businesses get stuck because they can't figure out how to set a budget for their ads, but it all becomes clear once you know your LTV.
The calculation is simpler than you'd think. You need three numbers:
- Average Revenue Per Account (ARPA): What do you make per customer, per month (or year)?
- Gross Margin %: What's your profit margin on that revenue after cost of goods sold?
- Monthly Churn Rate: What percentage of customers do you lose each month?
The formula is: LTV = (ARPA * Gross Margin %) / Monthly Churn Rate
Let's take an example. A B2B SaaS client has an ARPA of £500, a gross margin of 80%, and a monthly churn of 4%.
LTV = (£500 * 0.80) / 0.04
LTV = £400 / 0.04 = £10,000
In this example, each customer is worth £10,000 in gross margin to the business over their lifetime. Now we have the truth. A healthy LTV to Customer Acquisition Cost (CAC) ratio is at least 3:1. This means you can afford to spend up to £3,333 to acquire a single £10,000 customer. If your sales process converts 1 in 10 qualified leads into a customer, you can afford to pay up to £333 for a single qualified lead. Suddenly, that £250 lead from a CTO on LinkedIn doesn't seem expensive, does it? It looks like a bargain. This is the maths that unlocks aggressive, intelligent growth and is the key to understanding paid ad ROI.
To make this easier, here's a calculator you can use to figure out your own LTV and affordable acquisition cost.
How to work backwards from your goals to a budget
Once you know your affordable CAC, you can reverse-engineer your entire funnel to determine a starting budget. Instead of picking a number out of thin air, you're building a model based on clear objectives. This requires understanding your conversion rates at each stage of the funnel.
You need to know (or estimate):
- Lead-to-Customer Rate: What percentage of qualified leads become paying customers?
- Landing Page Conversion Rate: What percentage of people who click your ad and visit your landing page become a lead (e.g., fill out a form, start a trial)?
- Click-Through Rate (CTR): What percentage of people who see your ad click on it? (Less important for budget, more for ad performance).
- Average Cost Per Click (CPC): What does it cost to get one person to your website from an ad?
Let's walk through it. Imagine your goal is to acquire 10 new customers next month. Your affordable CAC is £3,333.
- How many leads do you need? If your Lead-to-Customer rate is 10% (1 in 10 leads close), you need 10 / 0.10 = 100 leads.
- How many clicks do you need? If your landing page converts at 5%, you need 100 / 0.05 = 2,000 clicks to your website.
- What's your budget? If your average CPC is £5.00, your required ad spend is 2,000 clicks * £5.00/click = £10,000.
Just like that, you have a data-driven budget. Your CAC in this scenario would be £10,000 / 10 customers = £1,000. This is well below your affordable CAC of £3,333, making this a potentially very profitable campaign. Now you can confidently invest that £10,000 knowing exactly what you need to hit at each stage. This entire process is about building a proper ad budgeting guide for your own business, not relying on guesswork.
(10% Lead-to-Customer Rate)
(5% LP Conversion Rate)
(£5.00 Avg. CPC)
Your Offer is Probably The Reason Your Ads Are Failing
Now we arrive at the most common failure point in all of B2B advertising: the offer. I've seen countless campaigns with perfect targeting and brilliant copy fail because the call to action was "Request a Demo". This is perhaps the most arrogant CTA ever conceived. It presumes your prospect, a busy decision-maker, has nothing better to do than book a meeting to be sold to. It is high-friction, low-value, and instantly positions you as a commoditised vendor.
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. It has to be so good that it feels like a mistake not to take it. We often find that founders are so focused on ad spend they forget the offer is the most powerful lever they have.
- For SaaS Founders: This is your unfair advantage. The gold standard is a free trial (no card details) or a freemium plan. Let them use the actual product. Let them feel the transformation. When the product itself proves its value, the sale becomes a formality. One of our B2B SaaS clients generated 1,535 trials using this exact approach on Meta ads.
- For Service Businesses: You must bottle your expertise into a tool or asset that provides instant value. For a marketing agency, this could be a free, automated SEO audit. For a data analytics platform, a free 'Data Health Check'. For us, as a B2B advertising consultancy, it's a 20-minute strategy session where we audit failing ad campaigns completely free. You must solve a small, real problem for free to earn the right to solve the whole thing.
- For high-ticket physical products: Don't just state the spec; state its consequence. "Our new mass spectrometer has a 0.001% margin of error. So what? So your lab can publish results with unshakeable confidence, securing more funding and attracting top talent." The offer isn't the product; it's the confidence and prestige it brings.
Forecasting Your Results: From Guesswork to Scenarios
A budget without a forecast is just a spending limit. Forecasting isn't about having a crystal ball; it's about creating a range of potential outcomes to guide your decisions. This allows you to set realistic expectations and identify quickly if a campaign is underperforming. Using industry benchmarks and your own data, you can build Best Case, Realistic, and Worst Case scenarios.
For example, we know from experience that for B2C signups in developed countries, a CPA can range from £1.60 to £15. For B2B leads, it can be much higher; we have a software client getting leads for $22 on LinkedIn, which is fantastic for them. For eCommerce, a cost per purchase can range from £10 to £75. These ranges are wide, which is why you model them.
Let's take our £10,000 budget from before and create a forecast:
| Metric | Worst Case | Realistic Case | Best Case |
|---|---|---|---|
| Ad Spend | £10,000 | £10,000 | £10,000 |
| Avg. CPC | £7.50 | £5.00 | £3.50 |
| Clicks | 1,333 | 2,000 | 2,857 |
| LP Conversion Rate | 2.5% | 5% | 8% |
| Leads | 33 | 100 | 229 |
| Cost Per Lead (CPL) | £303 | £100 | £44 |
| Lead-to-Customer Rate | 8% | 10% | 12% |
| New Customers | 3 | 10 | 27 |
| Customer Acquisition Cost (CAC) | £3,333 | £1,000 | £370 |
Now you can see the power of this. In the worst-case scenario, you're breaking even on your 3:1 LTV:CAC target. In the realistic case, you're highly profitable. And in the best case, you've built an incredible growth engine. This forecast gives you clear KPIs to monitor. If after a week your CPL is trending towards £300, you know you need to intervene, rather than waiting until the entire £10k is spent. This is how you unmask the true ROI of your ads and make decisions with confidence.
Here is an interactive forecaster to help you build your own scenarios.
The Final Framework: Your Actionable Budgeting Plan
This all might seem like a lot, but it boils down to a repeatable process. You move from abstract numbers to a concrete, strategic plan that connects your marketing spend directly to business growth. It's the difference between hoping for results and engineering them. If you've ever felt like your ad spend has plateaued, it's almost always because one of these foundational pieces is missing.
I've detailed my main recommendations for you below:
| Step | Action | Key Metric | Why It Matters |
|---|---|---|---|
| 1. Define | Identify your Ideal Customer Profile (ICP) based on their most urgent, expensive "nightmare" problem, not their demographics. | Problem-Market Fit | Ensures your messaging is hyper-relevant and your targeting is precise, leading to higher quality clicks and lower waste. |
| 2. Calculate | Calculate your Customer Lifetime Value (LTV) using your ARPA, Gross Margin, and Churn Rate. | LTV & Affordable CAC | This is the foundation of your budget. It tells you the maximum you can afford to spend to acquire a customer profitably. |
| 3. Engineer | Create an irresistible, low-friction offer that provides immediate value (e.g., free trial, audit, valuable content, free tool). | Offer Conversion Rate | This is the engine of your funnel. A great offer dramatically increases your landing page conversion rate, lowering your CPL. |
| 4. Reverse | Work backwards from your monthly customer goal through your funnel conversion rates (Lead-to-Close, LP CVR) to determine the required clicks. | Required Clicks & Leads | Turns a vague goal into specific, measurable targets for your marketing campaigns. |
| 5. Budget | Multiply your required clicks by your estimated Cost Per Click (CPC) for your target platforms to get your data-driven monthly ad spend. | Monthly Ad Spend | This provides a justifiable, model-based budget instead of a random number plucked from the air. |
| 6. Forecast | Create Best Case, Realistic, and Worst Case scenarios for your budget by varying your key metrics (CPC, CVRs). | CAC Range | Sets clear expectations, establishes performance benchmarks, and allows for rapid identification of underperforming campaigns. |
Why this is hard to do on your own
This framework is straightforward, but implementing it is complex. Each step requires expertise. Accurately estimating your CPCs, diagnosing a low landing page conversion rate, writing copy that speaks to a customer's nightmare, and optimising campaigns based on your forecast scenarios is where most businesses get stuck. This is where experience makes a huge difference. An expert can look at your numbers and immediately spot the biggest lever for growth, potentially saving you months of wasted ad spend and frustration.
If you've gone through this framework and feel like the pieces aren't quite fitting together, or you want a second pair of expert eyes on your numbers, that's what we're here for. We offer a free, no-obligation 20-minute strategy session where we can walk through this exact framework for your business. We'll help you calculate your LTV, audit your current campaigns, and identify the single biggest opportunity for you to grow profitably with paid ads.
