Your ad account tells you what each "conversion" cost. That is a useful number, but it is not the one that pays your bills. A conversion might be a call, a form, or a click on your phone number. Some of those people become customers. Many do not.
The number that tells you whether your marketing is working is what each new customer cost, and what was left after the work was done.
Short answer: Add up everything you spent on marketing for the month, not just ad spend. Divide it by the number of new customers that came from those same calls and forms. That is your cost per customer. Then subtract job costs and marketing costs from the sales those customers brought in to see what was left.
Why "cost per conversion" is not enough
There are at least four different counts in a typical month, and they are easy to mix up:
- Actions your ad account reported. Whatever it was set up to count.
- Calls, forms and messages you counted. Real contacts in your log.
- Good-fit contacts. People who actually wanted what you sell, in your area.
- Customers. People who bought.
Each step is smaller than the one before it. Dividing your spend by step 1 gives you a cheap-looking number. Dividing by step 4 gives you the real one. Our free Marketing Results Calculator keeps these separate on purpose. Its own help text puts it simply:
"Your ad account counts actions like calls or form fills. A customer is someone who actually bought. Keep the two counts apart."
The math the tool uses
From the tool page:
"Cost per contact is spend divided by contacts. Cost per customer is total marketing cost divided by customers. What is left is sales minus job costs minus total marketing cost. Sales per $1 of ad spend is sales divided by ad spend."
Notice the switch from "spend" to "total marketing cost." Ad spend is only what you paid the ad site. Total marketing cost also includes management fees, design and other costs you enter.
The tool's own worked example
This is the example on the tool page. The numbers are made up and are not a forecast.
| What you enter | Value |
|---|---|
| Ad spend | $800 |
| Other marketing costs | $200 |
| Calls, forms or messages | 20 |
| Contacts who were a good fit | 10 |
| Customers from those same contacts | 4 |
| Sales from those customers | $4,000 |
| Job costs for those sales | $1,600 |
| What you get | Value |
|---|---|
| Ad cost per call, form or message | $40 ($800 divided by 20) |
| Total marketing cost per call, form or message | $50 ($1,000 divided by 20) |
| Total marketing cost per customer | $250 ($1,000 divided by 4) |
| What is left after job costs and marketing | $1,400 ($4,000 minus $1,600 minus $1,000) |
| Sales for each $1 of ad spend | $5 ($4,000 divided by $800) |
Reading the example: the same month, three different stories
Look at how much the answer changes depending on which line you read:
| If you only looked at… | You would think each result cost… |
|---|---|
| Ad spend per contact | $40 |
| Total marketing cost per contact | $50 |
| Total marketing cost per good-fit contact | $100 ($1,000 divided by 10, our arithmetic) |
| Total marketing cost per customer | $250 |
None of these numbers is wrong. They answer different questions. The one that tells you whether the month paid off is the last one, read together with what was left.
The funnel in this example also shows where to look next. Half of the 20 contacts were a good fit. Of those 10, four became customers. If you wanted more customers from the same spend, the gap between good-fit contacts and customers is a natural place to start. Our post on getting leads but no customers covers what usually happens in that gap.
What is left is not profit
The tool is careful about this, and we are too:
"In this example, $1,400 is left after job costs and marketing. That money still has to cover rent, taxes and other costs. It is not profit. A high sales number does not prove the ads caused the sales."
The last sentence matters. A customer who saw your ad may have also been referred by a neighbor. The tool cannot sort that out, and neither can most ad reports.
Make sure your counts come from the same group
The most common mistake in monthly results is mixing groups. For example, dividing October's ad spend by October's customers, when half of those customers first called in September.
The tool will not do that comparison for you:
"If your groups do not match, the tool will not compare them."
A practical fix: track each contact by the month they first reached out, then note later whether they became a customer. It takes a little discipline in your call log, and it makes every number after it more honest.
Compare your result to your target
A cost per customer means more when you compare it to what you can afford. If you have used our Lead Cost Calculator, you already have a target cost per contact. For illustration: if your target was $75 per contact and your total marketing cost per contact came in at $50, the month was under target on that measure. If it came in at $120, it was over.
Our guide on how much you can afford to pay for a lead explains how to set that target.
How to use the Marketing Results Calculator
- Pick the time period, usually one month.
- Confirm all your counts come from the same group of contacts.
- Enter ad spend and other marketing costs. If you do not know other costs, the tool uses ad spend only and says so.
- Enter the actions your ad account reported and the calls, forms and messages you counted yourself.
- Enter good-fit contacts and customers.
- Enter sales you can tie to those customers and the job costs for that work.
- Read the results in order: per contact, per customer, what was left.
When some numbers come back "not available"
That is on purpose. The tool page explains:
"Something is missing, a count is zero, the groups do not match, or you have not said where the sales came from."
A blank answer is more useful than a made-up one. It tells you which number to start tracking next month. Everything you type stays in your browser.
Questions owners ask
Is ad spend the same as total marketing cost?
No. From the tool page: "Ad spend is only what you paid the ad site. Total marketing cost also includes the other costs you enter, like fees."
What is "sales for each $1 of ad spend"?
It is sales divided by ad spend. In the example, $4,000 in sales on $800 of ad spend is $5 for each $1. It does not account for job costs or other marketing costs, so read it next to "what is left."
What if I do not track good-fit contacts?
Start with what you have. Even a simple yes or no next to each call in your log will make next month's numbers much more useful.
Check last month before you plan next month
Put last month's numbers into the free Marketing Results Calculator. If your ad report uses terms you are not sure about, the Marketing Report Translator explains them in plain words.
If your numbers raise more questions than they answer, talk with ThinkDMG. We help local businesses set up tracking that connects ad spend to real customers, so the monthly report tells you something you can act on. Learn more about our paid advertising services.
