Customer acquisition cost: how much you can pay for a client

How to calculate customer acquisition cost and ad ROI from your own numbers: a worked example in tenge, the maximum cost per lead, and how to read an ad report against it.

“Is 2,000 ₸ per lead expensive?” There's no answer until you've worked out what one client brings you. For one business that lead is a bargain; for another it's a straight loss. The good news: you don't need industry norms for this, only your own numbers and a calculator.

The numbers you'll need

• Average order value: revenue for a period divided by the number of orders.
• Margin: the share of each order left after cost of goods, delivery, packaging and payment or marketplace fees, but before advertising.
• Repeat purchases: how many times one client buys on average over a period you trust, say a year.
• Lead-to-sale conversion: the share of leads that end in a payment.

All of it comes from your own sales: your order sheet, your CRM, your Kaspi, Amazon or other marketplace dashboard. If the business is new and there are no repeat purchases yet, assume a client buys once. It's a cautious estimate you can refine later.

What a client is worth: an example in tenge

What follows is an example with made-up numbers. It isn't a norm for any industry, just an illustration: put in your own. The currency doesn't matter; the formulas work the same in dollars or euros.

• Average order value: 15,000 ₸.
• Margin: 40%, so the profit from one order is 15,000 × 0.4 = 6,000 ₸.
• Repeat purchases: a client buys 3 times a year on average.
• Client value per year: 6,000 × 3 = 18,000 ₸.

18,000 ₸ is the ceiling: pay that much for a client and you break even. Now decide how much you want to keep. Say, half: then your maximum customer acquisition cost is 9,000 ₸.

A cost per lead means nothing until you know what a client is worth.

The first purchase and cash in the bank

There's a trap. The first order brings in 6,000 ₸, and we've allowed ourselves to pay 9,000 ₸ for a client. So on the first purchase the ads lose money, and they only pay off with the repeat order. If cash is tight, or repeat purchases are still a hope rather than a fact from your sheet, set the limit by the first order: 6,000 ₸ minus what you want to keep.

How to work out the maximum cost per lead

Ads usually sell leads, not clients: messages, calls, forms. Not every lead buys. Say 2 out of 10 leads pay, a 20% conversion. Then:

• Maximum cost per lead = maximum cost per client × conversion.
• 9,000 × 0.2 = 1,800 ₸ per lead.

That answers the opening question: with these numbers, a lead at 2,000 ₸ is too expensive and one at 1,500 ₸ is fine. If you lift conversion to 25%, for instance by replying faster and calling back, the same client can carry a lead at 2,250 ₸. Sometimes it's easier to improve sales than to make ads cheaper.

How to calculate ad ROI from a report

An example monthly report, with made-up numbers: 60,000 ₸ spent, 40 leads, 7 sales.

• Cost per lead = spend ÷ leads = 60,000 ÷ 40 = 1,500 ₸. Below the 1,800 ₸ limit: good.
• Customer acquisition cost = spend ÷ sales = 60,000 ÷ 7 ≈ 8,570 ₸. Below 9,000 ₸: within budget.
• ROAS = revenue ÷ spend = 7 × 15,000 ÷ 60,000 = 1.75.
• ROI on the first purchase: (7 × 6,000 − 60,000) ÷ 60,000 = −30%.
• ROI over a year with repeat purchases: (7 × 18,000 − 60,000) ÷ 60,000 = 110%.

The same report gives different conclusions, and all of them are right: on the first purchase the ads lose money, over a year they pay off well. A handy check for ROAS: break-even ROAS on the first purchase = 1 ÷ margin. At a 40% margin that's 2.5, and anything lower only pays off through repeat purchases.

What to do when the numbers don't add up

• Cost per lead above the limit: the problem is the ad, the offer or the landing page. Change the angle, the audience or the offer, one variable at a time.
• Leads are cheap enough but clients are expensive: the problem is in sales, such as slow replies, no call-backs or an unclear price. The ads aren't to blame.
• Too few sales to judge: don't draw conclusions from two or three deals. Decide up front how much you're willing to spend on the test and judge at the end.
• You don't know where sales came from: put UTM tags on your links and ask every client how they found you.

All the formulas on one page

• Profit per order = average order value × margin.
• Client value = profit per order × number of purchases in the period.
• Maximum cost per client = client value − what you want to keep.
• Maximum cost per lead = maximum cost per client × lead-to-sale conversion.
• Cost per lead = spend ÷ leads; cost per client = spend ÷ sales.
• ROI (return on marketing investment) = (profit from acquired clients − spend) ÷ spend × 100%.
• Break-even ROAS = 1 ÷ margin.

Recalculate once a month: prices, costs and fees change, and so does your limit.

How VIT TEAM does it

The maths above is simple; the hard part is the discipline of checking every launch against the limit. You can hand that to the ads specialist or the analyst in the chat: “average order 15,000 ₸, margin 40%, conversion 20%; here are the spend, leads and sales for three campaigns, compare them with the limit and tell me what to switch off.” Every employee checks its work against its own checklist before you see it. And if you reject something with a reason, such as “our lead limit is 1,800 ₸”, it becomes a lesson the employee remembers.

The ads specialist costs $39 for a 24-hour shift or $299 a month, the analyst $29 / $229; the Ads & creatives package starts at $89 a month. You can try it free for 7 days.