"Spend 8% of revenue on marketing." It's the most-repeated advice in the industry, and it's close to useless. 8% of $2M is $160K. 8% of $20M is $1.6M. The business fundamentals at those two scales are wildly different — one person doing everything vs. a full marketing department. The question isn't what percentage to spend. The question is what to spend on, at your specific point in the growth curve, given your specific goals.
Here's a framework that works better than a percentage.
Start with your growth goal, not your current revenue
If you want to stay flat next year, your marketing budget should maintain the customer acquisition you currently have, minus any natural customer retention lift from referrals and repeat business. For most home services businesses, that means spending enough to generate 60–80% of next year's customers from marketing (the rest come from referrals, repeat, and other organic sources).
If you want to grow 25%, you need enough budget to produce the existing volume plus the growth volume. If you want to grow 100%, you need significantly more — probably a higher % of revenue, because you're building capacity that will pay back over multiple years.
A useful formula:
New customers needed = (Revenue goal ÷ Average customer LTV) × (1 - Retention rate)
For a $5M business targeting $6M next year, with an average customer LTV of $4,000 and a 30% retention rate:
- Revenue goal: $6M
- Average LTV: $4,000
- Total customers needed: 1,500
- Retention contribution: 450 (30%)
- New customers needed: 1,050
Then: new customers needed × blended CAC = marketing budget.
If your blended CAC is $275, that's $288,750 in marketing spend — about 4.8% of target revenue. Lower than the generic "8%." Which means for this business, 8% would be over-investing.
Or, if your blended CAC is $400 (common for businesses dependent on purchased leads), the same growth requires $420,000 — 7% of target revenue. Suddenly "8%" looks about right.
The lesson: your budget isn't a % of revenue. It's a function of your CAC, your LTV, your retention, and your growth goal.
Know your real CAC by channel
If you can't pull your CAC by channel today, stop reading and go read Series 1, post 8 on measurement. You can't size a budget without this data.
At minimum, you should know:
- Cost per lead by channel
- Lead-to-close rate by channel
- Average job value by channel
- 12-month LTV by channel
A typical variance you'll see: referrals at $50 CAC with $5,000 LTV. Google Ads at $250 CAC with $3,200 LTV. HomeAdvisor leads at $450 CAC with $2,800 LTV. Each channel has different economics, and your budget should reflect where the economics are best.
The three budget scenarios
Build out three budgets, not one. The act of comparing them makes the decision obvious.
Scenario A: Minimum viable
The cheapest budget that maintains current volume without acquiring any new customers. Just keep existing channels running, don't grow.
For most home services businesses, this is 3–5% of revenue. Basic Google Ads spend, keep GBP running, basic referral tracking. No new investment. Not a growth plan, but useful as a floor.
Scenario B: Sustainable growth
Budget that produces 15–25% annual revenue growth without requiring capital. Reinvest profit into marketing at a sustainable rate. This is where most $2M–$20M businesses should live.
Typical: 6–9% of revenue. Full four-channel coverage (local SEO, referrals, reactivation, paid search). One dedicated marketing person. Content and systems in place.
Scenario C: Aggressive growth
Budget that chases 40–60% growth, typically because you're entering a new market, launching a new service category, or competing against a new entrant. Requires tolerating lower short-term profit or outside capital.
Typical: 10–15% of revenue. Heavier paid media spend, marketing manager + specialists or agency augmentation, experimental budget for new channels, faster iteration cycles.
Most businesses shouldn't be here. If you're growing fast through other means (great word-of-mouth, contract wins, a founder who drives growth personally), you can compound at 30%+ on a Scenario B budget. Aggressive growth marketing is expensive and has diminishing returns.
The questions that determine which scenario you should be in
Ask yourself:
- What's my profit margin? If EBITDA is under 12%, you can't afford aggressive marketing spend. Stick to Scenario B at the more conservative end.
- What's my cash position? Marketing spend has a lag (you spend this month for customers that close 2–4 months later). If cash is tight, don't outrun it.
- What's my capacity? If your team can barely handle current volume, spending more on marketing just creates backlogs and bad reviews. Build capacity first, then scale demand.
- What's the competitive landscape doing? If a well-funded competitor is moving into your market, Scenario B defensively. If the market is fragmented and you have an edge, Scenario C offensively.
- What's my 5-year goal? If you're building to sell at a specific EBITDA multiple, the budget decision is different than if you're building a generational business.
The budget traps to avoid
Percentage creep
"Last year we spent 6%, let's do 6.5% this year." Why? Because the number is up? The budget should reset every year based on the growth goal and current CAC, not drift up because of inertia.
Fixed-cost lock-in
Vendors love annual contracts. They say you'll save money with an annual commitment. You also lose flexibility. At your scale, preferring month-to-month or quarterly commitments, even at a small premium, is almost always worth it.
Budget by committee
The owner, the marketing manager, the accountant, the CFO all have opinions. By the time you've negotiated the budget, it's a bland compromise that doesn't reflect strategy. One person (ideally the owner working closely with the marketing lead) owns the final number. Others input.
Agency minimums
A $5,000/month agency retainer doesn't care that your revenue dropped last quarter. It's still $5,000. If your budget is $30K a month and $15K is tied up in agency minimums, you have $15K to actually deploy flexibly. That's constraining.
Only commit to agency minimums that make sense for 12 months. Break contracts the moment the math stops working.
"Save" in the wrong places
Cheap stock photography. A free website builder. The cheapest content vendor. These "savings" compound into a brand that looks cheap, a website that doesn't convert, and content that doesn't rank. Saving $500 on the thing that produces leads often costs $5,000 in leads not acquired.
Spend the money on the parts that touch customers. Save on internal tools and back office.
The test that tells you the budget is right
After 6 months of running your current budget, answer honestly:
- Is CAC stable or declining? (Good — channels are maturing.)
- Is lead volume growing with spend increases? (Good — headroom in the market.)
- Is the team able to service the volume without quality degrading? (Good — capacity is keeping up.)
- Is cash comfortable or tight? (If tight, budget is too aggressive.)
- Are you ignoring channels that would work because you ran out of budget? (If yes, budget is too conservative.)
If all five answers are positive, the budget is right. Even if the % is different from what the industry says you "should" spend.
What to do this week
- Pull the data: CAC by channel, LTV by channel, retention rate, last year's actual marketing spend.
- Work the formula. What's the real marketing spend needed to hit your revenue goal?
- Build the three scenarios. Write them down with assumptions.
- Sleep on it. Come back and decide which scenario fits your business state today.
- Write the monthly budget by channel. Commit to reviewing it quarterly, not monthly.
Next week: what your junior marketer should actually be doing — the role definition most owners get wrong.
