What a lead should cost
A formula of three numbers that shows whether advertising can be profitable for your business at all.
There is no universal answer. For a dental clinic $15 per lead is normal, for pizza delivery it is a loss. The answer comes from three numbers in your business, and it takes five minutes.
Three numbers
Margin per sale. Not the price, but what is left after cost of goods, delivery and the technician’s pay. You sell a washing machine for $400, bought it for $320, delivery costs $15: the margin is $65.
Lead to sale conversion. Out of a hundred people who got in touch, how many bought. In appliance repair it is often 50-70%, in real estate 1-3%. If you do not know yours, count last month by hand.
Repeat purchases. How many times a customer comes back within a year. A coffee shop lives on repeat orders, a flat is bought once.
The formula
Maximum cost per lead = margin × lead to sale conversion × number of purchases.
For washing machines at 30% conversion that is $65 × 0.3 × 1 = $19.50. If a lead costs more, every sale from ads loses money. If it costs less, the ads pay off.
This is the break-even point, not the target. For ads to make a profit, you spend only part of the margin on them, usually 30-50%. The rest is yours. For washing machines the target cost per lead comes out at $6-10.
Three examples
| Dental implant | Pizza delivery | Online course | |
|---|---|---|---|
| Margin per sale | $300 | $4 | $150 |
| Lead to sale | 20% | 90% | 10% |
| Purchases per year | 1 | 6 | 1 |
| Break-even cost per lead | $60 | $21.60 | $15 |
Pizza with a $4 margin can afford a lead above $20 only thanks to repeat orders. Without them the limit would be $3.60, and ads for a new order would never pay off. That is why food delivery counts the customer over a year, not the first order.
The course has a $15 limit on a $150 margin. The reason is conversion: one lead in ten buys. Double the lead to sale conversion and the limit doubles too, with no change to the ads.
Compare with the market
Now put your limit next to the benchmarks by niche. If your limit is $15 and a lead in your niche costs $25-80, as in B2B, straightforward ads will not add up. If your limit is $60 against a market of $8-20, you have a large buffer and can test boldly.
What to do if it does not add up
- Raise the average order: a package instead of a single service, an upsell on the call.
- Handle leads faster. When a manager calls back three hours later, some people have already bought elsewhere. A quick reply lifts sales conversion without a dollar more on ads.
- Count the customer over a year if people in your niche buy again.
- Try another channel. A search lead costs more, but that person buys more often.
If nothing on the list helps, the honest answer is that paid ads do not fit your product right now. Better to learn that before the first thousand dollars than after.
Run your own numbers
The site has a cost per lead calculator. Enter the average order, margin, conversion and repeat purchases. It shows the limit, the target cost per lead and the profit per sale. If ads are already running, compare the result with what you see in the account. Every audit we do starts here.