How to determine the right ad spend for your business

How to determine the right ad spend for your business

Summary

Determining the right ad spend involves more than picking a random figure. In this article, we’ll help you navigate the process by breaking down key metrics such as customer acquisition costs, lifetime value, and revenue timelines. You’ll learn how to set a budget that balances investment with returns, ensuring your advertising efforts not only pay for themselves but also drive sustainable growth.

Introduction

Paid advertising is one of the fastest ways to attract new customers and grow your revenue, but knowing exactly how much to spend can feel overwhelming, especially if you’ve never run ads before. At GoGorilla, one of the most common questions we get is, “How much should I spend on paid advertising?”. The truth is, it depends on your goals, your costs, and how soon you’ll start seeing money come in from those ads.

If you’re seeking to expand brand awareness, you’ll likely use a different formula than if you’re laser-focused on acquiring new customers or generating direct revenue. This guide will show you how to calculate ad spend for various objectives, illustrate why it’s not “money down the drain”, and explain how your cash flow cycle can either accelerate or slow down your growth.​

Why you’re really running paid ads

Before diving into calculations, let’s consider why businesses run paid ads. It’s usually about reaching more people and converting them into customers, but the specific objectives can vary:
  • Spread the word quickly: More people hear about your products and services.
  • Boost sales: Reach potential buyers who are ready to purchase now.
  • Build lasting relationships: Turn new buyers into loyal brand advocates.

Many businesses primarily want new customers, making Customer Acquisition Cost (CAC) central to their strategy. CAC is the total cost incurred to acquire a new customer. It encompasses all marketing and sales expenses related to attracting and converting prospects. If your CAC is too high relative to the long-term value of those new customers (CLV), you risk overspending without a profitable return. However, if your main goal is brand recognition or generating leads, other metrics (such as CPM or CPL) may guide your budget. If your focus is on getting new customers, your paid ads can have a major impact on your bottom line.​

How to calculate the optimal ad spend​

  1. Define your business goals.
    ​
    Before crunching any numbers, clarify what you want your ads to accomplish. This could be:

    • Brand awareness: Increase recognition in a local market or strengthen presence in new international regions.

    • Customer acquisition: Acquire a set number of new customers each month to fuel short-term growth or sustain a broader pipeline.

    • Lead generation: Generate a specific number of qualified leads per quarter to support long-term sales cycles.

    • Sales growth: Increase revenue or units sold within a defined period to hit quarterly revenue targets.

Example:

  • For small and medium-sized businesses (SMBs): Acquire 50 new customers per month to grow a small online store.

  • For enterprise: Achieve £500,000 in additional sales revenue over a quarter.

Defining your goals sets the direction for choosing the right metrics and establishing an effective ad spend strategy.

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  1. Identify key metrics for your objective.

    Once you know your goal, determine which metrics will guide your ad spend decisions. Below are common advertising objectives, paired with the metrics that help track success:

      3. Calculate the right ad spend.


 Use the formulas and justifications below to determine how much you should invest for each objective.
ObjectiveSteps and FormulaeExamplesRationale
Brand awarenessSteps:
1. Determine how many impressions you need.
2. Multiply by CPM to get the total ad spend.

Formula:
Total Ad Spend = (Desired Impressions ÷ 1,000) × CPM		Example for SMBs:
• Desired impressions: 100,000
• CPM: £10

Total Ad Spend = (100,000 ÷ 1,000) × £10 = £1,000/month
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Example for enterprise:
• Desired impressions: 1,000,000
• CPM: £8

Total Ad Spend = (1,000,000 ÷ 1,000) × £8 = £8,000/month		This keeps spending tied to the reach you desire, letting you control how widely your brand’s message spreads.
Customer acquisitionSteps:
1. Calculate CAC.
2. Calculate CLV.
3. Pick an acceptable CAC (a fraction of CLV).
4. Multiply by desired customers to get the total ad spend.

Formula:
• CAC = Total Marketing Spend ÷ New Customers
• CLV = AOV × Purchase Frequency × Lifespan
• Acceptable CAC < CLV proportion (e.g. 33%)
  Note: Acceptable CAC is typically up to 33% of CLV for SMBs and up to 50% of CLV for enterprise due to higher margins.
• Total Ad Spend = Desired Customers × Acceptable CAC		Example for SMBs:
• AOV: £80
• Frequency: 3/year
• Lifespan: 2 years
• CLV: £80 × 3 × 2 = £480
• Acceptable CAC: ~33% of £480 = £158
• Desired customers: 50/month

Total Ad Spend = 50 × £158 = £7,900/month
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Example for enterprise:
• AOV: £500
• Frequency: 2/year
• Lifespan: 3 years
• CLV: £500 × 2 × 3 = £3,000
• Acceptable CAC: ~50% of £3,000 = £1,500
• Desired customers: 100/month

Total Ad Spend = 100 × £1,500 = £150,000/month		Prevents overspending by making sure each new customer’s lifetime value justifies the cost of acquiring them.
Lead generationSteps:
1. Identify how many leads you need.
2. Multiply by target CPL to get the total ad spend.

Formula:
Total Ad Spend = Desired Leads × CPL		Example for SMBs:
• Desired leads: 50/month
• CPL: £50/lead

Total Ad Spend = 50 × £50 = £2,500/month
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Example for enterprise:
• Desired leads: 500/month
• CPL: £100/lead

Total Ad Spend = 500 × £100 = £50,000/month		This aligns spending with lead volume, so you pay only for the leads you actually need.
Sales growthSteps:
1. Choose your desired ROAS.
2. Divide target revenue by this ROAS to get the total ad spend.

Formula:
Total Ad Spend = Target Revenue ÷ Desired ROAS		Example for SMBs:
• Target revenue: £10,000
• Desired ROAS: 5:1

Total Ad Spend = £10,000 ÷ 5 = £2,000/month
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Example for enterprise:
• Target revenue: £500,000
• Desired ROAS: 4:1

Total Ad Spend = £500,000 ÷ 4 = £125,000/month		Lets you invest only the amount needed to reach a specific revenue goal while maintaining profitability.

Minimum ad spend per channel
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The minimum ad spend per channel is £10/day, but it varies depending on your goals and preferred channel. It is important to understand where and how much to invest to support your advertising strategies.
ChannelMinimum daily ad spend
Google Ads
There is no strict minimum for Google Ads. Budgets can be scaled up based on your campaign goals or performance metrics.
£0.008/day
Meta Ads (Facebook & Instagram)
There is no strict minimum, but £0.8/day is a practical reference. It is recommended to set daily budgets at approximately 5-10 times your target cost-per-result.
£0.8/day
TikTok Ads
The daily campaign budget must exceed £40.59. However, individual ad group budgets can be set as low as £16.23/day.
£40.59/day
Pinterest Ads
Pinterest has a very low technical minimum but typically requires higher daily spends for meaningful results.
£0.008/day
Microsoft Ads
A practical recommended daily budget is approximately £4/day to ensure sufficient data collection.
£0.8/day
X Ads (formerly Twitter)
Minimum budgets start low, but effective campaigns typically require more.
£0.8/day
LinkedIn Ads
Minimum daily budgets and CPC costs tend to be higher due to LinkedIn's professional targeting capabilities.
£8.11/day
Snapchat Ads
Ad set budgets start around £4.06/day, but recommended effective daily budgets typically range from £20 to £40.
£16.22/day
Quora Ads
Effective daily budgets start from approximately £4/day, depending on campaign scale.
£4.06/day
YouTube Ads
Ad spend budget is managed through Google Ads, with very low technical minimum spend but practical budgets similar to Google Ads.
£0.08/day
Note: Exchange rates vary over time. These GBP conversions approximate commonly cited USD minimums. ​
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Meta retargeting
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Retargeting budgets depend on factors such as audience size, campaign duration, and performance objectives. Below are key considerations to guide your spend:
Factor

Recommended daily ad spend

Audience size calculation

The basic formula to calculate budget is: 

((N x D) ÷ 1000) × 5


Where:

N = Reachable audience size

D = Number of days the campaign will run

1,000 = Typical CPM basis (cost per 1,000 impressions) 

5 = Approximate average cost per 1,000 impressions (GBP)
Based on calculated total
Based on calculated total

Example:

If your reachable audience (N) is 3,000 people and your campaign duration (D) is 40 days, the calculation would be: 


((3,000 × 40) ÷ 1,000) × 5 = £600 total

Large vs. smaller audiences
  1. For larger retargeting audiences (e.g., website visitors within 180 days), allocate higher daily budgets to maximise reach.
  2. Smaller audiences (e.g., recent visitors within 7 days) typically require less spend.
£20 to£60/day
Recommended daily spend
Start with a minimum daily spend of approximately £10/day to gather enough impression data for effective optimisation. Adjust budgets upwards based on performance data, especially if you  achieve strong ROAS and CPA.
£10/day
Percentage of ad budget
Consider allocating around 5% to 10% of your total advertising budget specifically to retargeting efforts.
5% to 10% of total ad spend
Example:
With a total ad budget of £1,000 allocate approximately £50 to £100 for retargeting.
Product or service type
High-consideration purchases (e.g. luxury items, financial services) often benefit form higher retargeting budgets to nurture leads through the decision-making process.
£20 to £80/day
Sales cycle length
Industries with extended sales cycles (e.g. B2B services) may need sustained retargeting efforts, justifying a large budget allocation over time.
£20 to £60/day
Seasonality and promotions
During high-demand periods (e.g. holidays, sales events), increasing your retargeting budget can capitalise on heightened consumer interest.
£30 to £70/day
Algorithm and optimisation
Allocating sufficient budget helps Meta's algorithm exit the learning phase more quickly, leading to a more efficient ad delivery.
£20 to£60/day
Audience engagement level
Users who have interacted with your brand multiple times may convert with less retargeting spend, whereas less engaged audiences may require more budget to build familiarity and trust.
£5 to £50/day
Setting a baseline
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Sometimes, you just need to know the minimum effective amount to avoid underinvesting. A baseline spend ensures you collect enough data to optimise your ads effectively. If you’re working with GoGorilla, here’s what we often recommend:

  • Starter plan: £400/month
  • Grow plan: £600/month
  • Scale plan: £1,000/month
  • Enterprise plan: £3,000/month

These amounts, paid directly to the advertising channel and separate from any management fees, ensure you’re spending enough to generate meaningful data and effective results.

Why ad spend isn't a sunk cost

A “sunk cost” implies the money is gone forever, but that’s not how effective ads work. Well-structured campaigns can:
  • Generate immediate return: You might recoup some of your costs right away if customers convert quickly.
  • Increase customer lifetime value: Even if you don’t fully recover your costs on the first purchase, a loyal customer can be worth many times more than your initial spend.
  • Allow for reinvestment: If cash comes in before your ad invoices are due, you can put that money back into more ads, which accelerates growth.

Don’t be alarmed by large numbers
​
If the math suggests you need thousands (or even hundreds of thousands) per month, keep CLV in mind. If each new customer eventually pays for their own acquisition cost (and then some), the upfront number is more of an investment than a drain.

Example:
If your acceptable CAC is £150 and your CLV is £450, you’re effectively tripling your investment over the customer’s lifetime—even if it doesn’t all appear in your bank account immediately.
​
Aligning ad spend with management fees
​
If you’re working with an agency, remember that a fixed monthly management fee becomes a smaller percentage of your total budget as you scale. For example:

Scenario A: If you’re spending £5,000 on ads plus a £2,000 management fee, your total cost is £7,000 (28.6% is fees).

Scenario B: If you scale up to £20,000 in ads with the same £2,000 fee, your total cost is £22,000 (9.1% is fees).

As you increase your ad spend, a larger portion goes directly to acquiring new customers rather than covering overhead.

Considering cash flow in your ad spend

Scaling your advertising efforts demands a strategic approach to managing cash flow. The cash conversion cycle, which is the time between when you spend on ads and when that investment generates revenue, can make or break your ability to scale quickly.
​
Short cash conversion cycle
​
When your cash conversion cycle is short, your ad spend quickly translates into revenue. This allows you to:
  • Reinvest faster: Immediate cash flow lets you ramp up ads without waiting for large credit lines.
  • Maintain liquidity: Your business remains agile with minimal disruptions to daily operations.

Example:
An ecommerce business running flash sales may generate revenue within days of ad spend, making it easier to reinvest profits into further advertising.
​
Long cash conversion cycle
​
A long cash conversion cycle can pose challenges as revenue takes longer to materialise. This requires careful planning to ensure you can sustain your ad spend during the waiting period.

Potential issues:
  • Tying up capital in advertising may limit resources for other operational needs.
  • Cash flow gaps can slow down growth or require additional financing.

Example:
B2B companies with sales cycles of 3–6 months (or longer) may not see revenue from ads right away, requiring strategies to bridge the cash flow gap.
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Tips to manage cash flow
​
  1. Budget for upfront costs
    • Incorporate advertising and management fees into your financial planning.
    • Ensure your cash flow accounts for these expenses without disrupting other business operations.

  2. Validate ROI before scaling
    • Test ad performance with smaller budgets to confirm effectiveness. This reduces the risk of overcommitting funds to campaigns with uncertain outcomes.

  3. Use financing options for longer conversion cycles
    • Use business loans, lines of credit, or negotiate payment terms to avoid running out of cash.
    • Financing allows you to maintain advertising momentum without waiting for revenue to materialise.

  4. Monitor and optimise ad performance
    • Track your ROI closely and reallocate funds to high-performing campaigns. Improved efficiency reduces waste and shortens the cash conversion cycle.

  5. Implement dynamic budgeting
    • Adjust your ad spend based on cash flow availability and campaign performance. This ensures you’re never overextending while maintaining consistent growth.

Managing cash flow effectively means balancing your budget to achieve the best results. With higher ad spend budgets, you can take advantage of exclusive discounts we offer, further stretching your investment. To see how scaling your budget can lead to significant savings, please read our article: Understanding ad spend billing thresholds.

Putting your budget into action

Once you know how to calculate an effective ad budget, the next step is applying it strategically. At GoGorilla, we do more than hand you a target figure. We partner with you to plan, optimise, and refine your spending so it becomes a true growth driver for your business.

Learn more about our approach here: GoGorilla Paid Advertising

Want to see how your investment can translate into real results? Our pricing calculator allows you to forecast potential profits and estimate monthly ad spend tailored to your goals. By requesting a proposal, you'll receive a customised plan outlining the optimal budget allocation and strategy to achieve your objectives.