Marketing Math: The Formulas Cheat Sheet (ROAS, CAC, LTV and More)

Updated October 2026 · Written by Adrian Prokopiec · 17 min read

The marketing formulas a US small business actually needs are ROAS, CAC, LTV, break-even CPC and payback period, and all five can be worked out in a spreadsheet in 20 minutes. This 20 Minute Marketing cheat sheet gives each formula, a worked example from one real-sized business, the plain-English definition and the copy-paste spreadsheet cell.

Most marketing maths pages list formulas with no numbers, which is why they do not stick. Every example below uses the same business, so one set of figures runs from the first click to the lifetime value of the customer it produced.

Meet Desert Paws, a one-van mobile dog groomer in Phoenix, Arizona. Average job: $85. Last month the owner spent $600 on Google Ads and about $300 on booking software and her own time, took 10,000 ad impressions, 400 clicks and 24 bookings from the ads, and 20 of those bookings were brand-new customers. Hold those numbers in your head. They do all the work in this post.

The pure arithmetic needs no source. Where a formula depends on how a platform defines something, the definition is taken from Google Ads or GA4 documentation and linked where it appears.

Which marketing formulas should a small business know?

Nineteen, grouped by what they tell you. The first block answers “is my advertising working”. The second answers “are my ads being shown and clicked”. The third is for email. The last block is the business maths that makes the other three mean something.

Why does gross margin come first?

Gross margin = (price − direct cost of delivering it) ÷ price. It is the one number every other formula on this page leans on, which is why it comes before ROAS.

Desert Paws charges $85 a groom. Shampoo, fuel, van wear and card fees come to about $25 per job. Gross profit per job is $60 and gross margin is $60 ÷ $85 = 70.6%. Spreadsheet: =(85-25)/85.

The mistake: counting rent, insurance and the owner’s wage as direct costs. Those are overheads. They matter for the business, but they do not change with one extra job, so they stay out of the per-job margin.

How do you calculate ROAS?

ROAS = revenue from ads ÷ ad spend. Desert Paws: 24 bookings × $85 = $2,040 revenue from $600 spend, so ROAS is 3.4, which Google Ads would show as 340%. Spreadsheet: =(24*85)/600.

Google’s own Target ROAS bidding works in percentages: its help page uses the example “$5 USD in sales ÷ $1 USD in ad spend × 100% = 500% target ROAS”, and it needs conversion values set on your conversions before you can use it. For Search campaigns Google asks for at least 15 conversions in the past 30 days before the strategy has enough data to work with. A business doing 24 bookings a month qualifies. One doing six does not, and should bid manually or on Maximise Clicks instead.

What is break-even ROAS?

Break-even ROAS = 1 ÷ gross margin. At a 70.6% margin, Desert Paws breaks even at a ROAS of 1.42. Anything above that is profit on the first job alone. Spreadsheet: =1/0.706.

Now run it for a retailer on a 25% margin: break-even ROAS is 4.0. The “4:1 is a good ROAS” rule you see everywhere is a retail rule. For a service business with a 70% margin, 4:1 is excellent; for a reseller on 20%, it is a loss. That is the mistake: borrowing a benchmark from a business with a different margin.

How do you calculate customer acquisition cost (CAC)?

CAC = all marketing and sales cost in the period ÷ new customers won in the period. Desert Paws spent $600 on ads plus $100 on booking software and about $200 of the owner’s time (ten hours at the $20 an hour she would pay someone else). That is $900 for 20 new customers: CAC is $45. Spreadsheet: =(600+100+200)/20.

The mistake is counting only the ad spend, which gives a flattering $30. In the accounts I have managed, the owner’s time is the cost most often left out, and it is usually the biggest line. Price it at what you would pay a contractor, not at zero. For what else belongs in the number, see how much a US small business should spend on marketing.

What is the difference between CPA and CAC?

CPA = ad spend ÷ conversions. A conversion is whatever you told the platform to count: a booking, a call, a form. Desert Paws: $600 ÷ 24 bookings = $25 per booking. Spreadsheet: =600/24.

CPA is a platform number about one channel. CAC is a business number about everything. Four of Desert Paws’ 24 bookings were existing customers rebooking through the ad, so CPA counts 24 and CAC counts 20. Treat them as the same thing and you will think acquisition is cheaper than it is.

How do you calculate conversion rate?

Conversion rate = conversions ÷ clicks (in an ad platform) or conversions ÷ sessions (in analytics). Desert Paws: 24 ÷ 400 clicks = 6%. Spreadsheet: =24/400.

The two bases give different answers for the same month, and that is the mistake: comparing a click-based rate from Google Ads with a session-based rate from GA4. GA4 does not even call them conversions any more. Its documentation defines a key event as “an event that measures an action that’s particularly important to the success of your business”, and reports the rate as session key event rate and user key event rate. Pick one basis, write it down, and use it every month. For what a reasonable rate looks like by industry, see the website conversion rate benchmarks.

How do you calculate click-through rate (CTR)?

CTR = clicks ÷ impressions. Google’s definition is the same arithmetic: “if you had 5 clicks and 100 impressions, then your CTR would be 5%”. Desert Paws: 400 ÷ 10,000 = 4%. Spreadsheet: =400/10000.

The mistake is treating a high CTR as success. A 12% CTR on “free dog grooming tips” costs money and books nobody. CTR tells you whether the ad matches the search; conversion rate tells you whether the search was worth matching. CTR also feeds Quality Score, which is why it still deserves a column.

How do you calculate cost per click (CPC)?

CPC = ad spend ÷ clicks. Desert Paws: $600 ÷ 400 = $1.50. Spreadsheet: =600/400.

On its own a CPC is meaningless; $1.50 is cheap for a plumber and dear for a groomer in a small town. It only becomes a decision next to the break-even CPC below. For what clicks cost across US industries, see how much Google Ads cost in the US.

How do you calculate break-even CPC?

Break-even CPC = conversion rate × gross profit per conversion. Desert Paws: 6% × $60 = $3.60. Any click under $3.60 makes money on the first job; her actual $1.50 leaves plenty of room. Spreadsheet: =0.06*60.

This is the most useful number in Google Ads and almost nobody calculates it. It turns “is $1.50 a click too much” from a feeling into arithmetic.

What is CPM and when does it matter?

CPM = ad spend ÷ impressions × 1,000. Desert Paws: $600 ÷ 10,000 × 1,000 = $60 per thousand impressions. Spreadsheet: =600/10000*1000.

On Search, CPM is a by-product. It matters on Meta, YouTube and display, where you are buying impressions directly. The mistake is optimising a lead-generation campaign for a low CPM: cheap impressions in front of the wrong people are still wasted. If you want bookings, judge on CPA and conversion rate.

How do you calculate average order value?

Average order value = revenue ÷ number of orders. Desert Paws did 141 grooms last month for $11,985, so AOV is $85. Spreadsheet: =11985/141.

Watch it monthly. A $10 “first groom” discount that brings AOV down to $78 also lowers gross profit per job to $53, which lowers break-even CPC to $3.18. Discounts move every number on this page, usually without anyone noticing.

How do you calculate churn and retention?

Churn rate = customers lost in the period ÷ customers at the start of the period. Retention rate = 1 − churn rate. Desert Paws had 100 active customers a year ago; 40 have not booked in the last six months. Annual churn is 40% and retention is 60%. Spreadsheet: =40/100 and =1-0.4.

The mistake is not defining “lost”. A grooming customer who has not booked in six months is gone. A roofing customer who has not booked in six years might not be. Write the definition down before you measure, because churn decides the next formula.

How do you calculate customer lifetime value (LTV)?

LTV = gross profit per job × jobs per year × average years retained, where average years retained = 1 ÷ annual churn. Desert Paws customers book every eight weeks, so 6.5 grooms a year. At 40% churn the average customer stays 2.5 years. LTV = $60 × 6.5 × 2.5 = $975. Spreadsheet: =60*6.5*(1/0.4).

Done on revenue instead of gross profit the same customer is “worth” $1,381, and that is the mistake nearly every LTV page makes. You cannot spend revenue on ads. Only the $975 is real.

What is a good LTV to CAC ratio?

LTV:CAC = LTV ÷ CAC. Desert Paws: $975 ÷ $45 = 21.7 to 1. Spreadsheet: =975/45.

The 3:1 rule of thumb comes from software companies with high churn and long sales cycles. Local service businesses with repeat customers routinely land at 10:1 or more, and a ratio that high is not a trophy. It usually means the business is under-spending on acquisition and the real constraint is the owner’s calendar. If Desert Paws can fit 40 more grooms a month into the van, the maths says spend more, not less.

How do you calculate CAC payback period?

Payback period (months) = CAC ÷ monthly gross profit per customer. A Desert Paws customer produces $60 × 6.5 ÷ 12 = $32.50 of gross profit a month. $45 ÷ $32.50 = 1.4 months. Spreadsheet: =45/(60*6.5/12).

This is the formula that protects your bank account. LTV says a customer is worth $975; payback says you get your $45 back in six weeks. For a small business, under three months is comfortable and over six means growth will eat your cash even while the LTV maths looks wonderful. The mistake is skipping it because the LTV:CAC ratio already looked good.

How do you calculate click-to-open rate and revenue per recipient?

Click-to-open rate = email clicks ÷ email opens. Desert Paws sent a “book your autumn de-shed” email to 500 customers: 200 opened, 40 clicked. CTOR is 20%. Spreadsheet: =40/200.

Revenue per recipient = revenue from the email ÷ emails delivered. Six of those clicks booked: $510 ÷ 500 = $1.02 per email sent. Spreadsheet: =510/500.

Open rates have been unreliable since mail apps began pre-loading images, which is why CTOR and revenue per recipient are the two email numbers worth a spreadsheet column. The mistake is celebrating a 40% open rate on an email that made $0. Compare your figures with the email marketing benchmarks by industry, and for the sequences that drive the number up, see the three email automations every small business needs.

What is marketing efficiency ratio (MER)?

MER = total business revenue ÷ total marketing spend, across every channel, for the period. Desert Paws: $11,985 ÷ $900 = 13.3. Spreadsheet: =11985/900.

MER is the antidote to attribution arguments. Google claims 24 bookings, Meta claims 15, and the booking software says 30 people “just found you”. MER ignores all of it and asks whether total revenue is growing faster than total spend. The mistake is using it alone; it cannot tell you which channel to cut. Use MER for the whole budget and ROI tracking to judge the parts.

The one number to track if you only track one

Break-even CPC. Not ROAS, not LTV.

ROAS is reported by the platform that wants you to spend more, and it flatters thin-margin businesses. LTV depends on a churn figure most small businesses have never measured. Break-even CPC needs two things you can verify this afternoon, conversion rate and gross profit per job, and gives you one dollar figure to hold a bid against.

In the accounts I have managed, the pattern repeats: an owner with a $3.60 break-even and a $1.50 actual CPC who is nervous about “spending too much”, sitting next to one on a 20% margin paying $4 a click and congratulating himself on a 4:1 ROAS. The first should double the budget. The second is losing money on every sale. Neither knew until the formula was written down.

Recalculate it whenever your price, your direct costs or your landing page changes. Twenty minutes, once a quarter. The marketing budget calculator carries the same figures through to a monthly budget.

Ready to run the numbers in a live account? take the Google Ads course for $149 USD.

Frequently Asked Questions

What is the difference between ROAS and ROI?

ROAS compares revenue from ads with ad spend only, so a 3.4 ROAS means $3.40 of sales for every $1 of ads. ROI compares profit with total cost: (gross profit minus all marketing cost) divided by all marketing cost. Desert Paws has a 3.4 ROAS and, on $1,440 gross profit against $900 total marketing cost, a marketing ROI of 60%.

What is a good ROAS for a small business?

A good ROAS is anything comfortably above your break-even ROAS, which is 1 divided by your gross margin. A service business on a 70% margin breaks even at 1.4 and does well at 3. A retailer on a 25% margin breaks even at 4 and needs 6 or more. There is no single good number because margins differ.

How do you calculate CAC for a small business?

Add up every marketing and sales cost for the month, including ad spend, software and the owner’s time priced at what a contractor would charge, then divide by the number of brand-new customers won that month. Existing customers who rebooked do not count. Desert Paws: $900 divided by 20 new customers is a $45 CAC.

Should LTV be calculated on revenue or profit?

Profit. Lifetime value is used to decide how much you can afford to spend acquiring a customer, and you can only spend the gross profit, never the revenue. Multiply gross profit per purchase by purchases per year by average years retained. The same Desert Paws customer is worth $1,381 in revenue but $975 in gross profit, and only the $975 is spendable.

What is break-even CPC and how do you work it out?

Break-even CPC is the most you can pay for a click and still make money on the first sale. Multiply your conversion rate by your gross profit per conversion. At a 6% conversion rate and $60 gross profit per job, break-even CPC is $3.60. Use first-sale profit, not lifetime value, so the ad bill never outruns your cash.