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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.
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.
2. 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.
Minimum ad spend per channel
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.
Note: Exchange rates vary over time. These GBP conversions approximate commonly cited USD minimums.
Meta retargeting
Retargeting budgets depend on factors such as audience size, campaign duration, and performance objectives. Below are key considerations to guide your spend:
Setting a baseline
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.
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.
