Budget backwards, not forwards
Most ad budgets are set by picking a number that feels affordable. The better method runs the other way: state the revenue you need, then derive the spend that produces it. If the answer is unaffordable, you have learned something important before spending anything.
The chain
Clicks needed = Orders ÷ ( conversion rate / 100 )
Budget = Clicks × CPC
Worked example
₹5,00,000 target, ₹2,500 AOV, 2.5% CR, ₹12 CPC
- Orders required
- 200
- Clicks required
- 8,000
- Budget needed
- ₹96,000
- Cost per order
- ₹480
- Implied ROAS
- 5.21×
Now the real question becomes answerable: is ₹480 to win a ₹2,500 order acceptable? At a 40% gross margin the order yields ₹1,000 of profit, so yes, comfortably. At 15% it yields ₹375 and the campaign loses money on every sale.
Sanity-check the plan before you spend
- Check against break-even ROAS. 100 divided by your gross margin is the minimum. The ROAS Calculator does this.
- Assume conversion rate falls as you scale. The cheapest, most interested audience is reached first; broadening always costs efficiency.
- Assume CPC rises with volume. Buying more inventory means bidding into less competitive placements or against more competitors.
- Build in a learning budget. The first two to three weeks of a new campaign perform below steady state.
A reasonable planning adjustment is to add 20–30% to the calculated budget for the first month.
Frequently asked questions
How much should I spend on ads?
Enough to hit your revenue target at an acceptable cost per order. Work backwards from the target rather than picking a figure and hoping.
What conversion rate should I assume?
Use your own historical rate. Without one, 1–3% is a reasonable starting assumption for e-commerce and 3–8% for a service lead form.
Does this account for returns?
No. If you sell with cash on delivery and see meaningful return-to-origin, reduce your effective order value before using this.