Ad Budget Planning: From a Wish Number to a Defensible Figure
Most budgets are last year plus ten percent. How to work backwards from the goal instead — and the four points where the calculation breaks down.
The most common budgeting method is last year plus ten percent. The second most common is whatever is left over. Both share one flaw: neither says anything about whether enough enquiries come out the other end.
The useful direction is the reverse one — backwards from the goal.
Working backwards
Four figures are enough for a first defensible number:
- How many new customers do you need? Not "more" — a number.
- How many leads become customers? Your close rate, from the CRM, not estimated.
- What may a lead cost? It follows from contribution margin and close rate.
- What does a click cost, and how many clicks become a lead?
Points 1 and 2 give you the required lead count; point 3 gives the maximum cost per lead. The final step — volume times unit cost, split across month, year and day — is what the ad budget calculator handles. It works with clicks, leads or sales, and shows the result in three scenarios: unit cost as expected, 20% cheaper, 20% more expensive.
A worked example: 10 new customers a month at a 20% close rate → 50 leads. At €80 per lead that is €4,000 of media budget. If the close rate drops to 15%, you need 67 leads — at the same cost per lead, €5,360. Five percentage points in sales move the budget by a third.
Where the calculation breaks down
Click price is not a constant. More budget usually means broader delivery — which means less relevant queries and a rising average CPC. A budget extrapolated linearly from today's CPC is too optimistic at the top end.
Conversion rate depends on the page, not just the channel. Doubling the budget without touching the landing page buys twice as many clicks at the same loss rate.
Below a minimum threshold the campaign never learns. Automated bidding strategies need conversion volume. A budget that mathematically produces 6 leads a month often performs worse than the calculation promises, because the system never leaves the learning phase. That is why we do not start campaigns below €1,500 monthly budget.
Sales is part of the media plan. If leads are contacted two days later, the close rate falls — and the budget needed for the same goal rises. That is a process issue that lands in the media budget.
Frequently asked questions
What percentage of revenue should I spend?
Percentage rules are convenient and say little, because they ignore margin and close rate. A business with a 70% margin can carry a multiple of what a retail business with a 15% margin can. Calculate from contribution margin, not revenue.
What if I do not know my close rate?
Then that is the first task, not the budget question. Two to three months of clean CRM tracking give you a number you can plan with. Until then, any budget plan is a guess with decimal places.
Should the budget be flat across months?
Rarely. Seasonality, auction pressure and sales capacity all fluctuate. An annual budget with a monthly distribution makes more sense than twelve identical twelfths.
How do I account for several channels?
Calculate per channel, because CPC and conversion rate differ sharply. Sum afterwards. A blended average CPC produces a number that is correct for no channel at all.
What you can do today
- Pull the close rate for the last six months from your CRM — a real number, not a feeling.
- Determine the contribution margin of an average new customer.
- Run your new-customer target through the ad budget calculator.
- Look at the expensive scenario, not just the expected one. The gap is your risk buffer.
- Check whether the result clears the learning threshold. If not: fewer channels, with enough budget in one.
If the outcome is that the goal is not reachable with the available budget, that is a useful result — it prevents a year of disappointment. How we build campaigns around that is described under Google Ads — or talk it through in a first call.