Ad Budget Calculator

Prospecting against retargeting, honestly.

Written and maintained by Mohit PatelLast checked August 4, 2026How we build these

Currency

Monthly budget

Share on prospecting

Prospecting ROAS

Retargeting ROAS

Contribution margin before advertising

Revenue from this budget

$39,360

3.28× blended ROAS

Prospecting spend$8,400

Retargeting spend$3,600

Blended ROAS3.28×

Profit$4,531

Retargeting's 6.50× is not evidence it is a better channel. It converts people prospecting already found. Shifting budget toward it raises blended ROAS and shrinks the business, because the audience it retargets stops being replenished.

How the Ad Budget Calculator works

Retargeting's spectacular ROAS is not evidence it is a better channel; it converts people prospecting already found. Shifting budget toward it raises blended ROAS and shrinks the business, because the audience it retargets stops being replenished.

Also known as: advertising budget calculator · marketing budget calculator · how to set an ad budget

The calculation itself

There are three common ways to set an advertising budget. As a percentage of revenue, which is simple and arbitrary. From a target, orders needed × CPA, or revenue needed ÷ ROAS. Or from the marginal return, spending up to the point where the last dollar stops contributing.

The third is correct and the first is common. The second is a reasonable compromise where the data for the third does not exist.

Budget = target orders × affordable CPA is the practical working form.

Running the numbers

A business targeting 1,500 orders a month at a $24 affordable CPA needs $36,000 of monthly budget.

As a percentage of revenue: 1,500 orders at $58 is $87,000, that is 41%, which sounds alarming until it is checked against the 55% contribution margin. It leaves 14 points, which is a normal position for a paid-acquisition business.

The same business setting its budget at a conventional 10% of revenue would spend $8,700, generate roughly 360 orders, and be leaving profitable volume unbought.

That is the cost of a percentage rule: it is unconnected to whether the marginal order is profitable, which is the only question that matters.

What gets missed

Percentage-of-revenue budgeting is circular, revenue depends on spend, which is set from revenue, and it systematically underspends in growth and overspends in decline.

Budgets set from targets also assume the CPA holds at the new volume, which it usually does not for the reasons marginal returns decline.

What to do next

Set the budget from affordable CPA and expected volume, then adjust it against observed marginal returns rather than holding it fixed for the period.

Then separate the budget by campaign purpose: prospecting, retargeting, brand defence, because each has a different marginal return and lumping them together means the best-performing one caps the others.

Why a fixed monthly budget is usually the wrong structure

A fixed budget forces spending to stop when performance is good and continue when it is poor, which is precisely backwards. The economically correct behaviour is to spend more when the marginal order is profitable and less when it is not.

Most accounts cannot do that because the budget is a finance constraint rather than a performance one, and cash flow genuinely limits how fast spend can rise.

The workable middle position is a budget band rather than a number, a floor that maintains presence and a ceiling set by cash, with spend moving within it according to marginal return. That captures most of the benefit of performance-based spending while staying inside what the business can actually fund.

Budget should be allocated by marginal return rather than split evenly or by historical share. Channels differ in how much profitable volume they can absorb, and the correct allocation gives more to whichever is still returning above threshold on its last dollar.

That requires measuring marginal rather than average performance per channel, which most reporting does not do by default and which changes allocation decisions substantially when it is done.

Reviewing allocation monthly against marginal return, rather than annually against last year, is what keeps the split current.

Where to go next

The Ad Budget question rarely arrives on its own. These are the ones that usually come with it:

Ad Spend Calculator — Spend required for a revenue target.
Blended ROAS Calculator — The figure that reconciles to a bank balance.
Ad Frequency Calculator — Fatigue, measured rather than guessed.
Etsy Fee Calculator — Every Etsy fee on one sale, itemised.

Not financial advice. Marketplace fees change, and they vary by country, plan and seller status. Every rate here is an editable default, not a quoted price, check the platform's current fee schedule before you price a product against it. This is not tax or business advice.

Frequently asked questions

How should I split budget between prospecting and retargeting?

Retargeting is capped by the audience prospecting creates, so it cannot absorb much budget without frequency problems. Most ecommerce accounts land between 70/30 and 85/15 in favour of prospecting.

Why does retargeting show such high ROAS?

Because it advertises to people already in your funnel. Much of that revenue would have arrived anyway, which means the reported return substantially overstates the incremental one.

How do I test incrementality?

Hold out a portion of the retargeting audience and compare conversion. Most brands that run this test find retargeting is real but worth considerably less than reported.

What happens if I over-invest in retargeting?

Blended ROAS improves and revenue falls, because the top of the funnel stops being fed. It is one of the few ways to make the dashboard look better while the business gets smaller.