How Much Should Your Business Actually Spend on Advertising?

The Problem With "Industry Benchmarks"

You've probably heard: "Spend 5-10% of revenue on marketing."

This advice is useless. Here's why:

• A $5M business spending 5% = $250K/year. Plenty to work with.
• A $200K business spending 5% = $10K/year. Not enough to move the needle.

Industry benchmarks ignore:

• Your growth goals
• Your profit margins
• Your customer lifetime value
• Your competitive landscape

The Formula That Actually Works

Instead of arbitrary percentages, use this approach:

Step 1: Define Your Customer Acquisition Cost Target

Formula: Target CAC = Customer Lifetime Value × 0.25 - 0.33

If your average customer is worth $3,000 over their lifetime, you can afford to spend $750 - $1,000 to acquire them profitably.

Step 2: Determine How Many Customers You Need

Monthly Revenue Goal ÷ Average Transaction Value = Customers Needed

Example: $50,000/month goal ÷ $2,500 average = 20 customers needed

Step 3: Calculate Your Required Ad Budget

Customers Needed × Target CAC = Monthly Ad Budget

20 customers × $800 CAC = $16,000/month ad budget

The Growth Stage Factor

Your business stage changes everything:

Startup Phase (< $500K revenue)

• Focus on proving product-market fit
• Test small budgets ($1-3K/month)
• Prioritize learning over scaling

Growth Phase ($500K - $2M revenue)

• Systems are proven, time to scale
• Budget: $5-15K/month depending on margins
• Focus on optimizing CAC

Scale Phase ($2M+ revenue)

• Maximize proven channels
• Budget: $15-50K+/month
• Layer in brand building alongside performance

Channel-Specific Benchmarks

Not all channels perform equally. Here's what to expect:

Meta (Facebook/Instagram) Ads

• CPM: $8-15 (cost per 1,000 impressions)
• CPC: $0.50-2.00
• CAC for services: $50-300

Google Ads

• CPC: $2-10 (higher intent = higher cost)
• CAC for services: $75-400
• Better for capturing demand than creating it

LinkedIn Ads

• CPM: $30-80 (expensive but high-quality)
• CPC: $5-15
• Best for B2B with high LTV

The Minimum Viable Budget

Don't advertise if you can't spend at least $1,500/month per channel.

Here's why:

• Algorithms need data to optimize
• Testing requires volume
• Too little spend = too slow learning = no results

Better to focus on one channel with adequate budget than spread thin across three.

When NOT to Spend on Ads

Advertising accelerates what's already working. It doesn't fix broken fundamentals.

Don't run ads if:

• Your website doesn't convert (fix this first)
• Your offer isn't proven (validate with organic first)
• Your fulfillment can't handle more volume
• You can't track conversions properly

The Verde Approach to Ad Budgets

When we work with clients, we start with this conversation:

1. What's your revenue goal for the next 12 months?
2. What's your average customer value?
3. What are you willing to spend to acquire a customer?

From there, we reverse-engineer the budget needed to hit their goals—and we're transparent about whether it's realistic.

Quick Budget Calculator

Your numbers:

• Customer Lifetime Value: $_____
• Target CAC (LTV × 0.3): $_____
• Monthly customers needed: _____
• Monthly ad budget needed: $_____

Ready to Plan Your Ad Strategy?

Stop guessing and start calculating. Book a strategy call and we'll help you determine the right ad budget for your specific business and goals.