What a lead should actually cost you

Most owners have no idea whether they are overpaying for leads, because they compare against the wrong number. Here is the arithmetic that tells you.

August 20, 2026 · 5 min read · by Ido Katz

Ask a service business owner what a lead costs them and you usually get one of two answers. Either they do not know, or they quote a number they heard from someone else in their trade at a conference.

Both answers cause the same problem: they cannot tell whether their advertising is working, so they judge it on feel. And feel is a terrible instrument. A month with three big jobs feels great even if the advertising had nothing to do with it. A quiet month feels like the ads failed even when they produced more leads than the month before.

The fix is not complicated. It is one calculation, and you can do it in about four minutes.

The number everyone quotes, and why it is useless

The number people repeat is cost per lead — total ad spend divided by leads generated. Spend $3,000, get 50 enquiries, and your cost per lead is $60.

That number tells you almost nothing on its own. Sixty dollars is a bargain if you close one in four of those leads at $4,000 a job. It is a disaster if you close one in twenty at $600.

Cost per lead only becomes meaningful once you attach it to two other numbers you already know.

The three numbers that matter

One: what a customer is worth to you in a year. Not the first invoice — everything they spend in twelve months. A plumber who charges $340 for a callout but sees the same household three times a year has a customer worth roughly $1,000, not $340. A dental practice signing a new patient is looking at a year of hygiene appointments, not one exam.

Most owners undercount this badly, which makes their advertising look far more expensive than it is.

Two: how many leads you turn into customers. Be honest. Not "we close most of them" — the actual fraction. If you quoted forty jobs last month and won nine, that is 22%, whatever it feels like.

Three: what you can afford to pay to acquire one customer. This is the number almost nobody works out, and it is the one that settles every argument.

The arithmetic

Customer value × close rate = what one lead is worth to you.

A worked example. Say a customer is worth $2,400 over a year, and you close 25% of your leads.

$2,400 × 0.25 = $600

Every lead that comes through your door is worth six hundred dollars to your business on average — including the three out of four that go nowhere.

So if leads are costing you $60, you are paying ten cents to earn a dollar. That is not expensive advertising. That is the cheapest thing in your business, and the correct response is to buy more of it, not to negotiate the price down.

Turn it around. Suppose a customer is worth $700 and you close 10%:

$700 × 0.10 = $70

Now a $60 lead is barely breaking even before you have paid for the van, the fuel, or your own time. Same $60. Completely different verdict.

What good actually looks like

As a rough rule, healthy paid acquisition for a service business sits somewhere around a 3:1 to 5:1 ratio — a customer worth $2,400 acquired for $500 to $800 all-in.

Below 3:1 you are working for the ad platform. Above 5:1 you are almost certainly under-spending and leaving work on the table, because there is more of that demand available at the same price and you are not buying it.

Note that this is cost per customer, not cost per lead. At a 25% close rate, a $150 cost per lead is a $600 cost per customer. People confuse the two constantly and then panic at the wrong number.

Why the same lead costs different amounts in different businesses

You will hear wildly different figures quoted across trades, and most of the spread is real:

Do not treat someone else's number as your target. A roofer in a storm-hit market and a roofer in a quiet one are not in the same auction, even in the same state.

The mistake that makes all of this pointless

None of this arithmetic survives if you do not know which leads came from where.

If you cannot say "this enquiry came from that ad", your cost per lead is a guess dressed up as a number. Every referral, every repeat customer, every person who found you on a map gets quietly folded into the total, and your advertising looks either much better or much worse than it is.

Tracking this properly is not expensive. Distinct phone numbers per channel, a form that records where the visitor came from, and one place where all of it lands. That is a weekend of work and it changes every decision you make afterwards.

What to do this week

1. Work out what a customer is worth to you in a year. Everything they spend, not the first invoice.
2. Count last month honestly: leads in, jobs won. That is your close rate.
3. Multiply. That is what a lead is worth to you.
4. Compare it to what you are paying. If the gap is wide in your favour, the problem is not price — it is that you are not buying enough.

If step four says you are overpaying, the answer is usually not a cheaper lead. It is a better close rate, a higher-value customer, or a faster callback — and all three are inside your business, not the ad account.

Once you know what a lead is worth, the budget follows from it: how much a service business should actually spend on marketing.

Also: why buying more traffic did not fix it, and how to stop quoting people who were never going to buy.