Budgets and ROI.
Every business owner asks one question: "If I spend ₹10,000 on marketing, what do I get back?" Today you'll learn the maths that answers it: ROI, ROAS, customer acquisition cost and lifetime value.
The key formulas
| Term | Formula | Meaning |
|---|---|---|
| ROAS | Revenue from ads ÷ Ad spend | How many rupees of sales per rupee of ads |
| ROI | (Profit from marketing − Marketing cost) ÷ Marketing cost × 100 | Real return, using profit, not sales |
| CAC | Marketing cost ÷ New customers | Cost to get one new customer |
| LTV | Average order profit × Orders per year × Years as customer | How much profit a customer brings over time |
Worked example: a home bakery
- Ad spend: ₹5,000 → 100 orders.
- Average order value: ₹800 → Revenue ₹80,000.
- Profit per order (after ingredients, packaging, delivery): ₹250 → Profit ₹25,000.
ROAS = 80,000 ÷ 5,000 = 16 (₹16 of sales per ₹1 spent). ROI = (25,000 − 5,000) ÷ 5,000 × 100 = 400%. CAC = 5,000 ÷ 100 = ₹50 per customer.
Revenue looks great, but what decides if the ads are truly worth it?
High sales with tiny margins can still lose money. Always use profit.
LTV changes everything
If a customer orders 6 times a year for 2 years with ₹250 profit each time, LTV = 250 × 6 × 2 = ₹3,000. Spending ₹50 (or even ₹300) to win such a customer is a great deal. That's why retention (Lesson 4) matters so much.
Planning a small budget
- Decide a monthly amount you can afford to test (e.g. ₹5,000).
- Split: about 70% on what already works, 30% on new tests.
- Set a target CAC based on your profit per order and LTV.
- Review weekly; stop ads that don't hit the target, scale ones that do (slowly, 20–30% at a time).
Never promise guaranteed results like "₹10 lakh sales from ₹10,000 ads". Show past results, explain risks, and agree on targets together.
Not correct. ₹50,000 is revenue, not profit. Subtract product costs, delivery and other expenses before ad spend.
Good. Uses CAC and LTV and scales carefully.
₹4,000 ad spend brings 50 new customers. What's the CAC?
4,000 ÷ 50 = ₹80 per new customer.
Your task (20 min)
For a business you know, estimate: average order value, profit per order, orders per customer per year. Calculate LTV. Then decide the maximum CAC they could afford and a sensible monthly test budget.
Lesson 14 complete!
You can calculate ROI, ROAS, CAC and LTV, and plan a small marketing budget. Next: getting your first freelance client.
Next: Freelancing: your first client →