Calculating Google Ad Conversion Values For Lead Gen Campaigns

As I've explained in Why You Don't Want To Drive Your Google Ad Cost Per Conversion Too Low and Maximizing Return On Ad Spend For Your Google Ad Lead Gen Campaigns, when it comes to Google Ads or any advertising, it's important to know how much on average each lead is worth to your business.

So how are you suppose to determine that? What's the formula?

It's simple! You calculate average lead value by taking your average lifetime customer value and average sales conversion rate (i.e. how many leads you need to get on average before you get a sale) and multiply them to determine what an average lead is worth to your business.

So for example, if your average customer lifetime value is $10,000 and you need to speak to 5 leads before you get a new customer on average (20% sales conversion rate), then that means each lead on average is worth $2k to your business.

10000 * 20% = 2000

To break even on ad campaign, you'll need your cost per lead to be around $2000. This isn't counting any money paid to someone managing your campaign obviously, so you'll want to factor that in if you do have someone managing your campaigns.

Obviously, we want to do better than break even on ad campaigns. I shoot for a minimum of a 5-to-1 return on ad spend, meaning for every dollar spent on ads, you make $5. In the above example, the achieve a 5-to-1 ROAS, you'll want to generate leads at around $400.

$2000 / 5 = $400

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