How this calculator works
This model simulates a full-funnel paid search acquisition system using realistic assumptions across three layers:
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Traffic generation
Budget, CPC, and CTR determine impressions and clicks. -
Pipeline performance
Conversion rates define how clicks turn into leads, SQLs, and closed deals. -
Unit economics
Revenue and margin inputs translate deals into CAC, LTV, and payback period.
All outputs represent steady-state performance, assuming the campaign has exited the learning phase (typically after 3–6 months).
Funnel calculations
Clicks
[ Clicks = \frac{Budget}{CPC} ]
Impressions
[ Impressions = \frac{Clicks}{CTR / 100} ]
Leads
[ Leads = Clicks \times \frac{Click\rightarrow Lead}{100} ]
Sales Qualified Leads (SQLs)
[ SQLs = Leads \times \frac{Lead\rightarrow SQL}{100} ]
Deals
[ Deals = SQLs \times \frac{SQL\rightarrow Close}{100} ]
Cost metrics
Customer Acquisition Cost (CAC)
[ CAC = \frac{Budget}{Deals} ]
Lead Cost
[ Lead\ Cost = \frac{Budget}{Leads} ]
SQL Cost
[ SQL\ Cost = \frac{Budget}{SQLs} ]
Revenue & profitability metrics
Lifetime Value (LTV)
[ LTV = MRR \times Customer\ Lifetime ]
LTV to CAC Ratio
[ LTV:CAC = \frac{LTV}{CAC} ]
Payback Period
[ Payback = \frac{CAC}{MRR \times (Gross\ Margin / 100)} ]
This estimates how many months it takes to recover acquisition costs from gross profit.
Overall Conversion Rate
[ Overall\ Conversion\ Rate = \frac{Deals}{Clicks} \times 100 ]
This represents the post-click efficiency of the entire pipeline, from first click to closed deal.
How to interpret the results
LTV : CAC ratio
- Below 3:1 — Risky or unscalable
- 3:1 – 5:1 — Healthy for most growth-stage companies
- 5:1+ — Strong unit economics
Payback period
- Under 6 months — Excellent
- 6–12 months — Acceptable for most B2B and SaaS businesses
- Over 12 months — Capital intensive and higher risk
Why this calculator matters
- Prevents overspending before validating funnel economics
- Forces realistic assumptions across the entire acquisition pipeline
- Aligns marketing performance with financial outcomes
- Helps founders and growth teams decide whether paid search is worth scaling
Frequently Asked Questions
How do you calculate ROI for paid search campaigns?
Paid search ROI is calculated by comparing the revenue generated from acquired customers against the total ad spend. This calculator goes further by modeling the full funnel and estimating CAC, LTV, and payback period rather than relying only on top-line ROI.
What is a good LTV to CAC ratio for paid search?
A healthy LTV to CAC ratio for most SaaS and B2B businesses is between 3:1 and 5:1. Ratios below 3:1 are often difficult to scale, while ratios above 5:1 indicate strong unit economics.
Does this calculator work for Google Ads and Bing Ads?
Yes. The calculator is channel-agnostic and can be used for Google Ads, Bing Ads, or any paid search platform where CPC, CTR, and conversion rates are known or estimated.
What payback period is acceptable for paid search?
For most B2B and SaaS businesses, a payback period under 12 months is acceptable. Under 6 months is considered excellent, while longer payback periods increase capital risk.
Does this calculator include churn or expansion revenue?
No. LTV is calculated using base MRR and customer lifetime only. Expansion revenue, upsells, and churn reduction should be modeled separately.
Is this paid search ROI calculator suitable for B2C businesses?
It can be used for B2C businesses, but it is best suited for B2B, SaaS, and high-consideration funnels where SQLs and deal stages exist.
