Your PPC agency recommends $25K/month for Google Ads. You ask why. They walk you through competitive CPCs, industry benchmarks, campaign allocation best practices. Sounds reasonable.
But here’s what they didn’t ask first: What’s a customer worth to you? What are your margins? How many customers do you actually need? Does the channel math even work for what you’re selling?
Most agencies build PPC budgets backwards. They start with the channel and work toward results. Better approach: Start with your business economics and work backwards to see if PPC makes sense at all, then figure out what to invest.
Why agencies skip the economics
This isn’t malice. It’s that most agencies can’t think this way.
PPC specialists understand auction dynamics, campaign structure, and optimization tactics. They’re not trained to analyze business models, margin structures, or sales cycle economics. Ask them to calculate allowable cost per acquisition against gross profit margins, and you’ve left their expertise zone.
So they default to what they know: channel tactics. They recommend budgets based on competitive CPCs and what it takes to get statistically significant data, not whether the underlying economics support any spend at all.
We approach budget strategy differently because we’re not just PPC specialists. We’re business strategists who happen to run paid search campaigns. The economics question comes first. Channel execution comes second.
Start with business context, not channel tactics
Before touching competitive CPCs or campaign structure, you need three numbers from your business.
Customer lifetime value (LTV)
Total revenue from a customer over the entire relationship, not just the initial sale. A $15K project that expands to $150K over three years has completely different economics than a one-time transaction.
Most companies have multiple service lines with different lifetime values. Model these separately because they require different acquisition strategies.
Contribution margin
Revenue minus variable costs to deliver the service. This is more precise than gross margin because it isolates what you actually keep after the direct costs of fulfilling that specific customer.
A $100K contract at 35% contribution margin gives you $35K to work with for acquisition. A $100K contract at 55% contribution margin gives you $55K. Same revenue, completely different budget capacity.
Note: If you only track gross margin (revenue minus cost of goods sold), that works too. Contribution margin is simply more accurate because it excludes fixed overhead that doesn’t scale with individual customers.
Target ROI and payback period
How many dollars you want back for each dollar invested, and how quickly. Most B2B companies target 3:1 LTV:CAC ratio with payback under 12 months. Higher confidence = lower multiple. Longer sales cycles = lower multiple.
This connects to your cost of capital, opportunity cost, and risk tolerance. Early-stage companies might need 4-5:1 because cash is tight. Established companies with proven channels might accept 2-3:1 for predictable growth.
The business economics filter
Armed with those three numbers, you can calculate whether PPC makes sense.
Allowable CAC calculation
Allowable CAC = (Customer LTV × Contribution Margin) ÷ Target LTV:CAC Ratio
This tells you the maximum you can spend acquiring a customer while hitting your ROI targets. It’s your ceiling.
Let’s model a professional services firm:
Service offering: Strategic advisory and implementation
- Average lifetime value: $180,000 (typically 2-3 year engagements)
- Contribution margin: 45%
- Target LTV:CAC ratio: 3:1
- Target payback period: 12 months or less
Conservative case: ($120,000 × 40%) ÷ 3 = $16,000 allowable CAC
Base case: ($180,000 × 45%) ÷ 3 = $27,000 allowable CAC
Optimistic case: ($240,000 × 50%) ÷ 3 = $40,000 allowable CAC
Modeling range: $16K-$40K allowable CAC
We model ranges because you’re working with assumptions, not perfect data. Conservative case assumes lower LTV and margins. Optimistic case assumes expansion revenue and efficiency improvements. Reality usually lands somewhere in the middle.
Now you need to test if the channel can deliver below that ceiling.
Channel viability research
Research competitive CPCs for your specific services. Google Keyword Planner gives you ranges. Be conservative with your assumptions.
Estimate realistic conversion rates from click to customer. Not click to lead. Click to actual paying customer. For high-ticket B2B services ($50K+ deals), 1-2% is often realistic. Complex sales cycles might see 0.5-1.5%.
These aren’t marketing funnel conversion rates. This is the complete rate from ad click all the way through closed deal. It accounts for everything: landing page conversion, lead qualification, sales process, close rate.
Important terminology note: Most PPC platforms report “CPA” (cost per acquisition) which usually means cost per lead. That’s not the same as CAC (customer acquisition cost). To get actual CAC, you need to account for the full click-to-customer journey, including your sales close rate. If your platform says $500 CPA but only 20% of those leads close, your actual CAC is $2,500.
Probable CAC calculation
Probable CAC = Average CPC ÷ Estimated Click-to-Customer Rate
Using our professional services example:
- Competitive CPC for strategic advisory keywords: $40-60
- Expected click-to-customer conversion rate: 1.0-1.5%
Conservative case: $60 ÷ 1.0% = $6,000 probable CAC
Base case: $50 ÷ 1.25% = $4,000 probable CAC
Optimistic case: $40 ÷ 1.5% = $2,667 probable CAC
Modeling range: $2.7K-$6K probable CAC
The viability test
Compare your probable CAC to your allowable CAC.
Probable CAC: $2.7K-$6K
Allowable CAC: $16K-$40K
Status: Highly viable. Even the conservative probable CAC ($6K) comes in well below the conservative allowable CAC ($16K). The math supports testing with strong economic cushion.
This analysis took maybe two hours of research and modeling. It tells you whether PPC can work before spending a dollar on ads.
We walk every client through this framework before launching campaigns. Not because we’re afraid of losing money (our agency fee is the same either way). Because recommending a channel that can’t be profitable for your business model isn’t strategic partnership, it’s just order-taking.
The decision framework
After running your viability calculation:
Green: Probable CAC ≤ 70% of allowable CAC
Status: Highly viable
Action: Launch with confidence
Starting budget: Work backwards from sales goals
Monitoring: Track CAC and payback monthly, refine model quarterly
Risk: Low, strong economic cushion
This is where our example landed. The numbers work with room for error. Market conditions can shift, your assumptions might be off, and you’ll still be profitable. Target keeping actual CAC below 70% of allowable and payback under 12 months.
Yellow: Probable CAC between 70-100% of allowable CAC
Status: Borderline viable
Action: Test carefully with limited budget
Starting budget: 50% of full budget for 90 days
Monitoring: Track CAC weekly, kill or scale based on data
Risk: Medium, little room for error
Success criteria: Hit ≤80% of allowable CAC with payback under 12 months within 90 days
You’re in the danger zone. Small mistakes or market changes can push you unprofitable. Test with capital you can afford to lose while learning if the channel works for you.
Red: Probable CAC > allowable CAC
Status: Not viable at current economics
Action: Don’t launch (or pause existing campaigns)
The math doesn’t work. Spending money proves nothing except that you ignored the business economics. Three options:
Improve conversion rates through better landing pages, stronger offers, or more efficient sales processes. Increase customer lifetime value through upsells, better retention, or expansion revenue. Find lower-cost channels like SEO, email, or partnerships.
Revisit quarterly. Market conditions change. Competitors leave. Your business economics improve. What doesn’t work today might work in six months.
Working backwards to budget
Once you’ve confirmed viability, calculate starting budget by working backwards from your sales goals.
Using our professional services example with a goal of 2 new customers per month:
Required conversions: 2 customers
At 1.0-1.5% conversion rate: Need 133-200 clicks per month
At $40-60 CPC: $5,300-$12,000 monthly budget
Starting recommendation: $8,000-$10,000 per month (middle of viable range)
This isn’t “spend until it works.” It’s “here’s the investment that makes sense given our economics and goals.”
If your goal is more aggressive (say, 5 customers per month), you’d need 333-500 clicks at $13,300-$30,000 monthly. The budget scales directly from your customer acquisition targets, filtered through the economics that determine viability.
Why ranges, not point estimates
Anyone giving you an exact budget projection on day one is lying. They don’t know your actual conversion rate. They’re guessing at CPCs that shift with competition and seasonality. They have no idea how your sales team performs.
We model ranges because that’s honest. Conservative case helps you plan for challenges. Optimistic case shows what’s possible if things go well. Reality usually lands somewhere in the middle.
As you gather data, ranges tighten. Month one you’re working with educated guesses. Month six you’ve got real conversion data. Month twelve you understand seasonal patterns. Your model gets better as you learn.
That’s why we tell clients upfront: We’re going to figure this out together over the next year or two. Start with educated guesses, refine quarterly as real data replaces assumptions. Most agencies pretend they have perfect answers day one. We build better answers through collaboration and iteration.
The reality check nobody wants to hear
Real talk: Sometimes the math just doesn’t work. Thin margins, small deal sizes, high competitive CPCs. PPC might never be viable for your business model.
Better to learn that through two hours of analysis than burn $50K testing a channel that could never be profitable. We’d rather tell you PPC isn’t right for you than take your money knowing the economics don’t support it.
That actually happened last month. An attorney came to us wanting PPC. We ran the numbers. Their deal sizes and margins couldn’t support competitive CPCs in their market. We showed them why, recommended they focus on SEO and referral partnerships instead, and sent them on their way. No fee, no pitch for other services, just honest analysis.
Could we have taken their money anyway? Sure. Would that have been strategic partnership? No.
The saturation principle
Doubling your budget doesn’t double your results.
PPC operates on a curve. You capture the easiest, cheapest clicks first. As you scale budget, you expand into less-qualified traffic at higher CPCs.
The first $10K/month might deliver incredible ROI. The next $10K captures incrementally worse traffic at higher costs. Understanding this curve prevents the “just spend more until it works” trap that destroys marketing budgets.
We scale clients gradually. Prove efficiency at each budget level before increasing. Track both average CAC (total spend divided by total customers) and marginal CAC (the cost of your most recent customers). When marginal CAC starts exceeding 70% of your allowable CAC, you’re approaching the efficient frontier. You’re not leaving money on the table. You’re respecting the auction dynamics that govern the channel.
Working with imperfect data
Most companies don’t have clean numbers sitting in a spreadsheet. Sales cycles are long, attribution is messy, lifetime value calculations require assumptions about retention.
That’s fine. Model with what you have. Knowing your average deal is “somewhere between $30K-100K” and close rate is “probably 10-20%” lets you run scenarios. The companies that refuse to estimate? They’re spending $20K+/month with no idea if it can ever work.
Even rough estimates are infinitely better than ignoring economics entirely. We help clients build these models using whatever data they have, then refine them quarterly as assumptions become facts.
Questions to ask any agency
These questions expose whether an agency thinks strategically or tactically:
“What business information do you need before recommending a budget?”
Listen for: Questions about LTV, contribution margin, close rates, target LTV:CAC ratio, payback period requirements. If they jump straight to platform tactics, they’re thinking backwards.
“How do you determine if PPC is economically viable for our specific business?”
Listen for: Allowable CAC vs. probable CAC calculations. If they say “PPC works for everyone,” run.
“Walk me through how you connect ad spend to business outcomes, not just marketing metrics.”
Listen for: Feedback loops between closed deals and campaign optimization. If they stop at lead conversion, they’re optimizing for the wrong thing.
“How do you handle uncertainty in conversion rates and customer value?”
Listen for: Ranges, scenario modeling, iterative refinement. If they give exact numbers day one, they’re lying.
“What are your thresholds for scaling, holding, or pausing based on CAC and payback?”
Listen for: Specific percentages (like 70% of allowable CAC) and timeframes (like 12-month payback). If they treat budget as “set it and forget it,” they’re not learning.
Use these whether you work with us or someone else. Sophisticated buyers use evaluation criteria to assess all options, not just convenient gatekeeping that only works if you hire us.
Refining as you learn
Every 90 days, revisit your assumptions with real data. Customer LTV might be trending higher than projected because expansion revenue exceeded expectations. Contribution margins might have shifted due to efficiency improvements or cost increases. Sales cycle length could be compressing as your process matures, or extending as you move upmarket.
On the channel side, actual CPC trends tell you if auction pressure is increasing. Your real conversion rate from click to customer replaces your initial estimate. Attribution modeling might reveal that PPC plays a different role in the customer journey than you assumed. Track both average and marginal CAC to understand when you’re hitting diminishing returns.
This creates a feedback loop. Business economics inform channel decisions. Channel performance validates or challenges business assumptions. Quarterly reviews ensure you’re operating on facts, not outdated guesses.
Document what changes and why. You’re building institutional knowledge that compounds over time. The company that runs this process for three years understands their acquisition economics better than competitors who just spend based on last year’s budget plus 10%.
Key takeaways
PPC budget planning is a business economics decision, not a marketing tactic. Start with your numbers: customer lifetime value, contribution margins, target LTV:CAC ratio and payback period. Calculate allowable CAC to understand your ceiling.
Research the channel viability through competitive CPCs and realistic conversion rates. Calculate probable CAC. If probable CAC is lower than allowable CAC, the math works. If not, don’t spend until something changes.
For viable channels, work backwards from sales goals through your funnel to calculate required clicks and budget. Model as ranges rather than point estimates. You’re working with educated guesses initially, refining as data comes in.
Review quarterly. Real data replaces assumptions. Market conditions shift. Your business economics evolve. The conversation isn’t “what’s our annual budget?” It’s “are we hitting our CAC and payback targets, and if so, how much can we scale based on what’s working?”
This ties marketing spend to actual business outcomes instead of treating budget like an arbitrary line item someone made up in a planning meeting. Done right, this approach doesn’t just drive profitable growth. It builds defensible competitive advantage through channel efficiency your competitors can’t match.
Because while they’re copying industry benchmarks and hoping for the best, you’re making decisions grounded in your specific business economics and learning faster than they can.
Frequently asked questions
How much should we spend on Google Ads each month?
Start by calculating your allowable CAC: (LTV × Contribution Margin) ÷ Target LTV:CAC Ratio. Then estimate probable CAC from PPC using competitive CPCs and realistic click-to-customer rates. If probable CAC is lower than allowable CAC, work backwards from sales goals to determine required clicks and budget. For most B2B companies with $50K+ deal sizes, viable starting budgets range from $8K-$30K monthly, but your numbers matter more than industry averages.
Can I know if PPC is viable without trying it first?
Yes. That’s exactly what the business economics framework prevents (burning budget to learn what analysis could have told you upfront). Calculate allowable CAC using your LTV, contribution margin, and target LTV:CAC ratio. Research competitive CPCs in your market. Estimate realistic click-to-customer conversion rates for your service (1-2% for high-ticket B2B is typical). Calculate probable CAC. If probable CAC comes in lower than allowable CAC, PPC is viable to test. If it’s higher, the math doesn’t work and you’ll lose money regardless of optimization. This viability check takes a few hours of research but can save you from spending $50K+ testing a channel that could never be profitable for your specific business model.
What if I don’t know our exact LTV or close rate?
Start with educated guesses and refine quarterly. Most companies don’t have perfect data. Sales cycles are long and attribution is messy. Model ranges instead of point estimates. “Our deals are probably $30K-$100K” and “we close maybe 10-20% of qualified leads” lets you run scenarios. Even rough estimates are infinitely better than ignoring economics entirely. As you gather data over 6-12 months, tighten your ranges and adjust budget accordingly. The companies that refuse to estimate? They’re flying blind when spending $20K+ monthly.
Why do PPC results plateau when I increase budget?
PPC operates on a performance curve, not a straight line. You capture the easiest, highest-intent clicks first: people actively searching for exactly what you offer. As you increase budget, you expand into broader terms with lower intent, less-qualified audiences, and higher competition. Your first $10K monthly might deliver incredible ROI. The next $10K captures incrementally worse traffic at higher CPCs. This is normal auction dynamics, not campaign failure. Scale gradually, prove efficiency at each budget level before increasing, and understand that doubling budget rarely doubles results.
How often should I revisit our budget strategy?
Quarterly reviews minimum. Every 90 days, revisit your assumptions with real data. Actual CPCs, conversion rates, LTV by service line, close rates, contribution margins, and payback periods. Market conditions change. New competitors enter, search volumes shift, your business economics evolve. What was viable at 3:1 LTV:CAC might be even better at current performance, or auction pressure might have eroded viability. Update your model, adjust budget based on economics, and document what changed. This iterative approach builds compound improvement over time and prevents you from either overspending on underperforming campaigns or underfunding working channels.
What about campaign structure and conversion tracking?
This article focuses on the business economics decision: whether to spend and how much to invest. Campaign structure, conversion tracking architecture, and tactical setup are separate implementation topics that matter once you’ve confirmed viability. The budget strategy comes first because there’s no point optimizing campaign structure if the channel math doesn’t work for your business model.
Is this framework right for all PPC campaigns?
This framework is specifically designed for performance-driven B2B campaigns where you need to prove ROI against business economics. It’s less relevant for two scenarios:
Pure brand awareness campaigns: If your goal is impressions and reach (not leads or sales), simpler budgets based on audience size and frequency targets make more sense. You’re buying attention, not conversions.
Very small test budgets: If you’re just starting with $1,000-$2,000/month, this deep analysis is probably overkill. The goal at that stage is rapid, low-cost learning, not economic modeling.
This framework becomes essential once you’re ready to treat PPC as a scalable, predictable growth channel rather than an experiment.
Building strategy on business reality
This strategic thinking is how we approach every engagement, regardless of investment level. Good strategy shouldn’t be gated by budget.
Most PPC agencies start with the channel and hope the numbers work out. The business-first approach starts with your economics and determines if the channel makes sense before spending a dollar.
You now have the complete framework. Calculate allowable CAC from your business metrics. Research probable CAC from market conditions. Compare them to determine viability. Work backwards from sales goals to model budget as ranges that account for uncertainty. Refine quarterly as assumptions become data.
This is how marketing connects to actual business growth instead of being a budget line item someone invented to look strategic in a planning deck.
If you’d like help working through this framework for your specific business, let’s talk.
