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What is a good ROAS or cost per lead for a small business?

There is no universal number: work backwards from close rate and deal value.

There is no good universal number, and we will not quote you an industry benchmark we cannot stand behind. A good ROAS is one that clears your gross margin. A good cost per lead is one your close rate and deal value can support. Both are arithmetic, not folklore.

Why benchmark tables mislead

Cost per lead tables lump together businesses with wildly different deal sizes, close rates and definitions of a lead. A $40 lead is excellent if you close one in four at $9,000 and terrible if you close one in twenty at $300. The number you find online is also usually somebody's client average, sold to you as an industry standard. Use your own numbers.

Do the math instead

Start at the end and work back:

  • Average closed deal value. Use gross profit, not revenue, if you want a decision you can trust.
  • Lead to close rate. From your CRM, for paid leads specifically. Paid leads usually close at a different rate than referrals.
  • Value per lead equals deal gross profit multiplied by close rate.
  • Target cost per lead equals value per lead multiplied by the share of that profit you are willing to spend on acquisition.

Example arithmetic: $6,000 gross profit per job, a 20 percent close rate on paid leads, and a willingness to spend a third of the profit on acquisition gives a value per lead of $1,200 and a target cost per lead of about $400. Change any input and the answer changes, which is exactly why a borrowed benchmark cannot help you.

ROAS is the same idea in a different currency

Break even ROAS is one divided by your gross margin. At a 40 percent margin, break even is 2.5 to 1, so a 3 to 1 ROAS is modest profit and a 2 to 1 is losing money while looking busy. Ecommerce businesses can compute this weekly. Lead generation businesses need closed deal data pushed back into the ad platform or the CRM to compute it at all.

What to do if you cannot answer these

If you do not know your close rate on paid leads, that is the project, not the campaign. Get leads into a CRM with source attached before you argue about cost per lead.

Related: How do you track leads and conversions from paid campaigns?, Do you provide monthly reporting for paid campaigns?, What data and analytics services does LevelUp Digital offer?, and our data and analytics page.