Open any ad dashboard and you get a wall of numbers. For a local business, only a handful matter. They link up in a simple chain. People see your ad. Some click. Some call or fill in a form. A few become paying customers. This lesson walks through each number with worked examples, then shows you how to set a first budget from your own numbers instead of someone else's averages.
The chain: impressions to customers
Impressions → Clicks → Leads → Customers → Revenue
(CPM) (CTR, CPC) (CPL) (ROAS)- An impression is one time your ad is shown on someone's screen.
- A click is someone tapping the ad.
- A lead is someone contacting you: a call, a form, a message.
- A customer is a lead who books and pays.
Each metric below measures one link in that chain.
The five metrics
CPM: cost per thousand impressions
What it is: how much you pay for 1,000 ad views. Google Ads Help describes CPM bidding as paying "per one thousand views (impressions)".
Formula: CPM = (cost ÷ impressions) × 1,000
Example: you spend $150 and your ad is shown 25,000 times. CPM = 150 ÷ 25,000 × 1,000 = $6.
CPM mostly tells you what it costs to get in front of your audience. It's more useful on Meta (Facebook and Instagram) than on Google Search, where you usually pay per click.
CTR: clickthrough rate
What it is: the share of people who saw your ad and clicked. Google's formula: "clicks ÷ impressions = CTR."
Example: 25,000 impressions and 300 clicks. CTR = 300 ÷ 25,000 = 1.2%.
A low CTR usually means the ad isn't landing with the people who see it. Maybe it's the wrong audience. Maybe the photo is weak, or the offer is something nobody asked for.
CPC: cost per click
What it is: what you pay, on average, for each click. Google Ads Help says with CPC bidding "you pay for each click on your ads."
Formula: CPC = cost ÷ clicks
Example: $150 ÷ 300 clicks = $0.50.
CPC and CTR move together. If CPM stays the same and CTR doubles, CPC halves. Better ads make clicks cheaper.
CPL: cost per lead
What it is: what you pay, on average, for each call, form or message.
Formula: CPL = cost ÷ leads
Example: those 300 clicks produce 12 leads. CPL = $150 ÷ 12 = $12.50.
The step from click to lead (here 12 ÷ 300 = 4%) depends heavily on your landing page or form, how easy it is to call, and whether the page delivers what the ad promised. Platforms only report leads if you've set up tracking; see Measuring what works.
ROAS: return on ad spend
What it is: revenue earned for each dollar of ads. Google Ads Help gives the calculation as conversion value ÷ cost, often shown as a percentage: "$5 in sales ÷ $1 in ad spend × 100% = 500%".
Formula: ROAS = revenue from ads ÷ ad cost
Example: of the 12 leads, 3 become customers, each worth $400. Revenue = $1,200. ROAS = 1,200 ÷ 150 = 8 (or 800%).
ROAS uses revenue, not profit, and that catches people out: an 8x ROAS on a thin-margin job can still lose money once you pay for labor and materials. For a service business it's usually clearer to compare cost per customer with gross profit per customer.
Putting the example together
| Step | Number | Metric |
|---|---|---|
| Spend | $150 | |
| Impressions | 25,000 | CPM $6.00 |
| Clicks | 300 | CTR 1.2%, CPC $0.50 |
| Leads | 12 | CPL $12.50 (click-to-lead 4%) |
| Customers | 3 | Cost per customer $50 (lead-to-customer 25%) |
| Revenue | $1,200 | ROAS 8x |
Every number in this table is made up to show the math. Yours will differ, sometimes by a lot.
Why we don't quote "average CPL"
Plenty of articles claim to know the "average cost per lead" for dentists or plumbers. We don't repeat those figures, for three reasons:
- Most come from ad agencies or software vendors. They're drawn from those firms' own client accounts, which aren't a random sample.
- "Lead" means different things. A 5-second call, a junk form and a booked appointment may all count.
- Your city, season, offer and competition move the numbers. An AC repair lead in Phoenix in July is not the same market as one in Seattle in March.
So skip the averages and work out what a lead is worth to you.
How much can you afford per lead?
You need three of your own numbers, then some arithmetic:
- Gross profit per new customer (first job; add repeat value only if you're confident in it). Example: a dental new-patient exam and cleaning brings in $300 with $180 gross profit, and you know about half of new patients return for more work. Call it $250 of gross profit per new patient, conservatively.
- Lead-to-customer rate: of 10 people who contact you, how many book? Check your records. Example: 3 in 10 (30%).
- Break-even CPL = gross profit per customer × lead-to-customer rate = $250 × 0.30 = $75.
- Target CPL: below break-even so ads make money. Many owners aim for half: about $37.
Don't know your lead-to-customer rate? Measure that before anything else. It's often the number you can move the most: answering faster (see Speed to lead) can raise it without spending more on ads.
Setting a first test budget
The point of a test is to learn which ads and audiences bring leads at a cost you can live with. A few rules keep it honest:
- Budget for enough leads to judge. If your target CPL is $37 and you want roughly 20 leads before deciding, budget around $740 over the test period. With fewer leads, one lucky or unlucky week can fool you.
- Give it time. Meta's ad delivery system has a "learning phase". PPC Land, summarizing Meta's Business Help Center, reports that an ad set generally needs about 50 optimization events within seven days of its last significant edit to exit learning. Small local budgets often can't reach that, which is one reason early results jump around. Resist the urge to tweak ads every day.
- Know how platforms pace spend. Google Ads says a campaign "might spend up to twice your average daily budget" on a given day, but no more than 30.4 times the daily budget over a month. Meta has said it "may spend up to 75% over your daily budget" on some days, while not exceeding seven times the daily budget over a week (as reported by Jon Loomer).
- Change one thing at a time so you know what worked.
- Decide your stop rule in advance, for example: "If CPL is above $75 after $500 spent, pause and rethink the offer or landing page."
A local example: a restaurant's catering test
A restaurant wants more catering orders, the office-lunch kind. Gross profit on an average catering order is $350. In the past, about 1 in 4 catering enquiries booked.
- Break-even CPL = $350 × 0.25 = $87.50
- Target CPL = about $45
- Test: $900 over four weeks on Meta, aimed at office managers within 10 miles, with a simple catering enquiry form.
- After four weeks: 16 enquiries, CPL $56, 5 bookings. Above target but below break-even, and 5 orders brought about $1,750 gross profit on $900 of ads.
The call: keep going, and test a new ad image and a lunch-for-10 offer to try to bring CPL down. Nothing guarantees that works, but the decision came from the restaurant's own numbers instead of a blog post's average.
Do this now
What's the difference between CPC and CPL?
CPC is what you pay per click on your ad. CPL is what you pay per lead (call, form or message). Many clicks don't become leads, so CPL is always higher than CPC.
What is a good ROAS for a local business?
It depends on your margins. ROAS uses revenue, not profit, so compare cost per customer with gross profit per customer instead.
How much should a small business spend on a first ad test?
Enough to get around 20 leads at your target cost per lead, over a few weeks. Work it out from your own numbers rather than industry averages.
Why do my ad results swing so much in the first week?
Small budgets and the platform's learning phase both cause early swings. Meta's learning phase needs about 50 optimization events in a week, which many local ad sets never reach.
Sources
- Clickthrough rate (CTR): definition, Google Ads Help (checked Oct 2026)
- Cost-per-thousand impressions (CPM): definition, Google Ads Help (checked Oct 2026)
- Cost-per-click (CPC) bidding, Google Ads Help (checked Oct 2026)
- About Target ROAS bidding, Google Ads Help (checked Oct 2026)
- About average daily budgets, Google Ads Help (checked Oct 2026)
- Learning phase (summarizing Meta's Business Help Center), Sep 2026, PPC Land (checked Oct 2026)
- Updates to Meta ads budgeting (updated March 2025), Jon Loomer (checked Oct 2026)
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