The old rule for advertising as percentage of revenue says 5-10% for an established business and 10-20% if you're growing or new. That's a fine starting point, but it's also the lazy answer. A percentage of revenue tells you what you can afford, not what you should spend. Those are different questions.
The standard ranges
- Established, steady business: 5-8% of revenue
- Growing / competitive market: 8-12%
- Brand-new or aggressively scaling: 12-20%
So a service business doing $500,000 a year on an 8% budget spends around $40,000 annually, or about $3,300/month, across all marketing — not just ads.
Why the percentage rule is incomplete
It's backward-looking. It sets your future budget based on past revenue, which punishes you exactly when you should be investing to grow. It also ignores your margins. A business with 60% margins can spend far more aggressively than one running at 15%, even at the same revenue.
The better way: work from a target return
Instead of a flat percentage, decide what a customer is worth and what you'll pay to get one. If your average customer is worth $800 over their lifetime and you're comfortable spending $150 to acquire them, your budget is simply your growth goal times $150. Want 30 new customers a month? That's $4,500 in ad spend, and revenue justifies it directly.
Blend the two
Use the percentage as a ceiling ("I won't spend more than 12% of revenue") and the cost-per-acquisition math as your target. When ads are profitable and you have capacity to take the work, spend more. When they're not, fix the funnel before you feed it more money.
Don't forget what "advertising" includes
Your ad budget isn't just Google and Facebook spend. It includes your website, your content, and the management to run it all. A cheap ad budget with no landing page or follow-up wastes the clicks you paid for. If you're not sure where your site stands, our free SEO & AI score is a quick gut check.
A realistic starting point
For most local service businesses, budgeting 8-12% of revenue toward marketing, then managing it against a real cost-per-customer target, keeps you honest in both directions. You can see how we structure that in how Arbor runs your ads, and there are more growth guides on setting budgets by industry.
The percentage tells you the guardrails. The return on each dollar tells you where to actually spend inside them.