Clicks, Costs and Clients: How to use Contribution Margin and Break-Even Calculations for Profitable Paid Search Campaigns

Understanding contribution margin and breakeven for your client and calculating those effectively will allow you to develop a profitable Paid Search campaign. I encounter this challenge especially with funded startups that have money for marketing but have little to no conversion data. Discuss the details with your client to establish correct values for costs and determine a minimum ads budget required.

Here is one example:

1. Contribution Margin: Product Price $100 – Variable costs $20 = $80
2. Breakeven: Fixed Costs $10,000 / Contribution Margin $80 = 125 Conversions
3. Establish Industry Clickthrough (CTR) and Conversion Rates (CVR) from Google Ads, SEMrush, or your Google Rep. 4. Do the keyword research and establish Average Cost Per Click (CPC).

Avg. CPC: $2
CVR: 5%
Clicks for 1 conversion: 100/5 = 20 clicks.
CPA: 20 Clicks * $2/CPC = $40
Budget for 125 Conversions to Break Even: 125 * $40/conversion = $5000 budget.

Once this data is established, start running the campaigns and monitor actual CPC and CPA. If the metrics are stable, you can scale up spend and drive a profitable campaign.