How Do I Know If My Advertising Is Making Money?
By Bill Stilwell · Last reviewed October 17, 2026
The short answer
Section titled “The short answer”An ad channel is making money when the margin from the customers it brings in is more than everything you spent to get them. Add up all ad and selling costs, divide by new customers to get customer acquisition cost (CAC), and compare it to the margin each customer brings. Then decide for each channel: increase, keep, change, or stop.
Why it matters
Section titled “Why it matters”Many owners look only at cost per lead. A $30 lead sounds better than a $90 lead, until you see the $30 leads close one time in twenty and the $90 leads close one time in three. Without the full math, you can grow your ad spend and shrink your profit at the same time.
20.10.1 Lead cost
Section titled “20.10.1 Lead cost”What it means: total lead and advertising cost for a period.
How to do it: add ad spend, lead fees, platform subscriptions, and tracking tools for one channel in one month. Divide by the number of leads.
Common mistake: leaving out monthly platform fees.
20.10.2 Qualified-lead cost
Section titled “20.10.2 Qualified-lead cost”What it means: cost per lead that actually fits.
How to do it: count only leads in your area, for a service you offer, with real interest (see 16.3 Lead Qualification). Divide total cost by that number.
Common mistake: counting spam and out-of-area calls as leads.
20.10.3 Customer-acquisition cost
Section titled “20.10.3 Customer-acquisition cost”What it means: advertising and selling cost per new customer.
How to do it: add ad costs and selling costs, such as time spent on estimates, then divide by new paying customers from that channel. Example: $1,500 in ads and $500 in selling time that bring 8 new customers is $250 CAC.
Common mistake: dividing by leads instead of customers.
20.10.4 Average revenue
Section titled “20.10.4 Average revenue”What it means: revenue per customer or job.
How to do it: total collected revenue from the channel’s customers, divided by the number of those customers (see 7.1.7 Average Sale).
Common mistake: using the price you quoted instead of what you collected.
20.10.5 Gross margin
Section titled “20.10.5 Gross margin”What it means: revenue minus direct delivery cost, such as materials, job labor, and subcontractors.
How to do it: subtract direct costs from revenue for each job (see 7.1.8 Direct Delivery Cost).
Common mistake: forgetting crew time on callbacks.
20.10.6 Contribution margin
Section titled “20.10.6 Contribution margin”What it means: what’s left after variable acquisition and delivery costs.
How to do it: gross margin minus CAC. If a job brings $600 in gross margin and CAC is $250, contribution margin is $350. That money has to cover rent, insurance, and your pay.
Common mistake: calling a channel profitable because gross margin is positive, before subtracting CAC.
20.10.7 Payback
Section titled “20.10.7 Payback”What it means: how long it takes to earn back the cost of getting a customer.
How to do it: divide CAC by the monthly margin a customer brings. A recurring cleaning customer bringing $100 margin a month with a $250 CAC pays back in about 2.5 months.
Common mistake: expecting one-time job businesses to pay back over months that never come.
20.10.8 Repeat value
Section titled “20.10.8 Repeat value”What it means: extra profit from repeat purchases.
How to do it: look at real repeat rates from your records, not hopes. Use a careful estimate (see 21.9 Customer Lifetime Value).
Common mistake: assuming every customer will come back every year.
21.8.1 Included costs
Section titled “21.8.1 Included costs”What it means: every cost that belongs in CAC.
How to do it: include advertising, vendor fees, sales labor, software, and creative costs like photos or design used for ads. Write your list down so you count the same way each month.
Common mistake: changing what’s included from month to month.
21.8.2 Customer count
Section titled “21.8.2 Customer count”What it means: counting the right customers in the right period.
How to do it: count new customers from that source in the same period as the costs. If your sales cycle is long, use a longer period, like a quarter.
Common mistake: counting repeat customers as new.
21.8.3 Revenue
Section titled “21.8.3 Revenue”What it means: comparing CAC to what customers bring in.
How to do it: put CAC next to average revenue and contribution margin per customer for each channel.
Common mistake: comparing CAC to revenue and ignoring margin.
21.8.4 Channel comparison
Section titled “21.8.4 Channel comparison”What it means: comparing channels on profit, not lead count.
How to do it: one row per channel with spend, leads, customers, CAC, margin, and payback.
Common mistake: keeping the channel with the most leads when another one makes more money.
21.8.5 Payback
Section titled “21.8.5 Payback”What it means: recovery time for each channel. See 20.10.7 above for the method, and compare it across channels.
Common mistake: ignoring that slow payback ties up cash (see 24.2 Cash Flow Forecast).
21.8.6 Decision
Section titled “21.8.6 Decision”What it means: what you do with each channel.
How to do it: each month, mark each channel increase, keep, change, or stop, and write one line on why. Use the stop rule in 20.11 Ad Budget and Stop Rule.
Common mistake: letting a losing channel run because no one made a decision.
When to get help from a pro
Section titled “When to get help from a pro”A bookkeeper or CPA can help make sure your direct costs and revenue numbers are right. Questions to ask:
- Are my direct costs per job tracked so I can see gross margin by job?
- Can my books tag revenue by lead source?
- Which costs should count as selling costs?
Bill’s note
Section titled “Bill’s note”[Bill: add a short note. For example, a time you saw a channel with cheap leads lose money once the full math was done.]
How I did this for SiteSmarty
Section titled “How I did this for SiteSmarty”- [Date I did this:]
- [What I actually did, step by step: how I set up the paid-job economics sheet and which costs I included]
- [What it cost and how long it took:]
- [What surprised me or what I’d do differently:]
- [Screenshot or photo to add, with private info blurred: one month of the channel comparison]
- [Result so far:]
Questions people ask
Section titled “Questions people ask”What is customer acquisition cost? The total advertising and selling cost divided by new customers from that source.
What is contribution margin? Gross margin on a job minus what it cost to get the customer.
What’s a good payback time? It depends on your cash. One-time job businesses usually need payback on the first job.
How do I compare ad channels? On profit per customer and payback, not on lead count.
Audit check
Section titled “Audit check”| Outline line | Question | Pass looks like | Fail looks like | Evidence to collect |
|---|---|---|---|---|
| 20.10.1 Lead cost | Is total cost per lead calculated per channel? | All fees included | Ad spend only | Monthly sheet |
| 20.10.2 Qualified-lead cost | Is cost per qualified lead tracked? | Qualified count used | All leads counted | Qualification log |
| 20.10.3 Customer-acquisition cost | Is CAC calculated with customers, not leads? | Customers as divisor | Leads as divisor | CAC formula |
| 20.10.4 Average revenue | Is collected revenue per customer used? | Collected amounts | Quoted amounts | Revenue report |
| 20.10.5 Gross margin | Is gross margin tracked per job? | Direct costs subtracted | Revenue only | Job cost records |
| 20.10.6 Contribution margin | Is CAC subtracted from gross margin? | Contribution margin shown | Not calculated | Monthly sheet |
| 20.10.7 Payback | Is payback time known? | Months to payback shown | Unknown | Monthly sheet |
| 20.10.8 Repeat value | Is repeat value based on real records? | Real repeat rate | Guesses | Customer records repeat report |
| 21.8.1 Included costs | Is the list of included costs written? | Written list | Changes monthly | Cost list |
| 21.8.2 Customer count | Are only new customers in the same period counted? | Matching period | Repeat customers counted | CRM report |
| 21.8.3 Revenue | Is CAC compared to margin? | Side by side | Revenue only | Monthly sheet |
| 21.8.4 Channel comparison | Are channels compared on profit? | One row per channel | Lead counts only | Comparison table |
| 21.8.5 Payback | Is payback compared by channel? | Shown per channel | Not shown | Comparison table |
| 21.8.6 Decision | Is there a monthly decision per channel? | Written decision and reason | No decision | Decision log |
Where this fits
Do this first: 7.1.8 Direct Delivery Cost, 7.1.7 Average Sale, 15.8 Lead-Source Tracking
Do this next: 20.11 Ad Budget and Stop Rule
Related pages: 7.8.13 Maximum Customer Acquisition Cost, 21.2 Marketing Metrics, 21.9 Customer Lifetime Value, 20.4 Paid Search Ads, 20.5 Local Services Ads
Sources
- Google Business Profile Help, "Tips to improve your local ranking on Google" (checked October 17, 2026)
- IRS, Publication 538, "Accounting Periods and Methods" (checked October 17, 2026)
This page explains general rules and Bill's own experience. It is not legal, tax, or insurance advice. Talk to a qualified professional about your situation.