A company wants to add a $2M advertising campaign. CM% is 25%. What incremental revenue is needed to justify it?

How to answer

Incremental revenue needed = Investment / CM% = $2M / 0.25 = $8M. The campaign must generate at least $8M in incremental revenue to pay for itself. At $8M revenue, CM = $8M x 25% = $2M, which exactly covers the ad spend. To achieve a 2x return on ad spend (ROAS), you need $16M incremental revenue (generating $4M CM on $2M spend). Frame this practically: if average customer value is $500, the campaign needs 16,000 new customers ($8M / $500) to break even. If the company's current conversion rate from leads is 5%, that requires 320,000 leads. These cascading calculations help assess whether the campaign target is realistic.

Key idea: Incremental revenue needed = Ad spend / CM%; then check if the volume is realistic