How to size your marketing budget honestly

Series: The Marketing Playbook at $2M–$20M · Post 2 of 7

Every owner asks "how much should I spend on marketing?" and gets a generic "6–10% of revenue" answer. That's the wrong way to think about it. Here's a more useful framework for deciding what to actually spend.

By Ben Blair · 8 min read

"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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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

1. Pull the data: CAC by channel, LTV by channel, retention rate, last year's actual marketing spend.
2. Work the formula. What's the real marketing spend needed to hit your revenue goal?
3. Build the three scenarios. Write them down with assumptions.
4. Sleep on it. Come back and decide which scenario fits your business state today.
5. 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.

Next in this series

What your junior marketer should actually be doing →

The budget-sizing exercise is part of every free audit I run. We pull your actual data, work the formula, and talk through which scenario fits. Walk away with a clear number either way.

Book a free audit

The true cost of purchased leads (and the math nobody shows you)

Series: The Home Services Lead Machine · Post 1 of 8

You're spending $10,000 a month on HomeAdvisor, Angi, Google LSAs, and Facebook ads. You're closing one in eight leads. You feel like you're running to stay in place. Here's why — with actual numbers.

By Ben Blair · 8 min read

If you run a home services business that clears $2M and you're spending real money on purchased leads, you've probably had this conversation with yourself: We're paying more every year and closing fewer. And you're right. The math has been sliding against you, and most home services owners never actually run the numbers on what a purchased lead really costs them.

Let's run them.

What you think you're paying

HomeAdvisor, Angi, and Thumbtack charge roughly $30 to $100 per lead depending on your trade and market. Let's take the middle: $50 per lead. You buy 200 leads a month. That's $10,000 in lead costs.

Simple math from here: close one in eight, that's 25 jobs. Average job at $3,500 gross revenue. $87,500 in revenue on $10,000 in lead spend. Sounds fine. 11% CAC. You tell yourself that's working.

It's not what's actually happening.

What you're actually paying

The per-lead fee is the visible cost. It's maybe 40% of the real cost. Here's what the other 60% looks like, in numbers.

The shared-lead dilution tax

Every HomeAdvisor lead is sold to three to four other contractors in your area. Simultaneously. The customer fills out one form and gets four phone calls in the next ten minutes. Whoever calls fastest wins. If you're not the first caller in five minutes, your close rate drops by roughly 40%.

So of your 200 purchased leads, maybe 120 of them are meaningfully yours to win — the rest are either already booked by a competitor who called faster or already annoyed by the four calls they got.

Revised close rate on real opportunities: not 12.5% (25 of 200), but closer to 20% of the 120 winnable ones = 24 jobs. Not dramatically different at first glance. Keep reading.

The time tax on your sales team

Your sales rep (which, in a business your size, is often you) has to call every lead. Every one. The 80 that were never winnable get called too. At an average of 8 minutes per call (including the voicemails, the "we already hired someone" conversations, and the chasing), that's ten hours a month your sales person spends on leads that had no chance.

If you value your time at $150/hour (a conservative number for an owner at this scale), that's $1,500 in pure labor waste on unwinnable leads. Add it to the real cost.

The brand-invisibility tax

When a customer finds you through HomeAdvisor, they remember HomeAdvisor. Not you. They think they "hired HomeAdvisor," even though you're the one who did the work. They don't write a review on your site. They don't refer you. They don't come back for the next project — they go back to HomeAdvisor because that's the platform they trust.

You paid $50 for a lead, did $3,500 of work, and walked away with zero brand equity. The customer is the platform's customer, not yours. That's a silent cost that compounds over years.

The race-to-the-bottom tax

Because shared leads go to the fastest caller willing to underbid, purchased-lead economics push your margins down over time. You start giving quotes that are 5% under your usual price just to close. Repeat that over 20 jobs a month, every month, for a year, and you've given up $42,000 in margin without noticing.

The real CAC, all-in

Let's add it up, honestly:

• Lead fees: $10,000/month
• Labor waste on unwinnable leads: $1,500/month
• Margin erosion from competitive bidding: $3,500/month (conservative)
• Brand equity foregone: Doesn't show up on the P&L, but over three years this is the difference between a business with a referral pipeline and one without. Call it $2,000/month in lost future revenue.

Real monthly cost: $17,000, not $10,000.

Revised CAC on 24 actual jobs closed: $708 per customer.

You thought you were paying 11% CAC. You're actually paying 20%. And every additional month you run the same playbook, the number gets worse, because the platforms raise their fees, competitors get faster, and your brand gets no more visible.

The question no purchased-lead vendor will ask you

If you had to convert half of that $17,000 per month into a channel that owned the customer relationship — a channel where the customer finds you directly, remembers you, refers you, and comes back for the next project — what would that channel look like?

Most home services owners have never asked this question because they're too busy putting out the lead-fire every morning. The channel exists, though. It's a combination of four things, in priority order:

1. A Google Business Profile treated like your #1 asset (not an afterthought).
2. Local SEO done properly — not the junk most agencies sell as "SEO."
3. Review generation as a systematic, non-negotiable part of every completed job.
4. Content that answers the real questions your customers search before calling anyone.

None of those four cost anywhere near $10,000/month to run. Done well, they generate leads you own at a fraction of the CAC, with the customer remembering you, not a platform.

That's what the rest of this series covers. One channel at a time. Math, tactics, the order to tackle them in.

What to do this week

Before the next post, run the numbers on your own business. Pull last month:

• Total spend on purchased leads (all vendors)
• Total leads bought
• Close rate (jobs closed / leads bought)
• Average job gross revenue
• Your labor cost per purchased-lead call (hours × your rate)

Calculate your real all-in CAC on purchased leads. Write the number down. It's going to be bigger than you thought. That number is the baseline against which every other channel gets measured in the next seven posts.

If the number's over $500, you have a real problem. If it's over $800, you're in the trap actively. Either way, the fix is coming.

Next in this series

Your CPA by source: the one-hour audit that will change how you budget →

I run a fractional marketing operation for home services companies at exactly this scale. If you've run your numbers and they look ugly, the audit I do is free and takes 48 hours. You keep the report either way.

Book a free audit