The Budget Question
How much should you spend on ads? The honest answer: it depends on what you're trying to buy.
Most small business owners hear rules like "spend 2-5% of revenue on marketing" or "allocate 10% of profit." These are starting points, not laws. They ignore what you actually need to achieve—and whether you have any customers yet.
This guide walks you through three real frameworks instead.
Framework 1: Revenue-Based Baseline
If you have a track record, work backward from revenue.
As a common rule of thumb, established small businesses budget roughly 2-5% of annual revenue on total marketing (not just ads—includes email, content, staff). On $500K revenue, that's a rough range of $10K-25K annually.
Within that total, paid ads might be 30-60%, depending on your customer acquisition model. A plumber with strong referrals may spend a smaller share on ads; an e-commerce shop with no word-of-mouth might lean heavily on them.
Key caveat: This assumes you're already profitable. A pre-revenue startup can't spend a percentage of zero. Skip to Framework 2 instead.
Framework 2: Cost Per Acquisition (CPA)
This is the true north metric.
Step 1: Know your profit per customer. If you sell $1,000 products with 40% gross margin, your gross profit per sale is $400. If you sell services at $150/hour with $80/hour cost, your profit is $70/hour.
Step 2: Set a payback window. How long before a customer becomes profitable? A roofing company might recoup the cost in a single large job. A subscription business might need many months of retention.
Step 3: Calculate acceptable spend. If you gross $400 per sale, your acceptable customer acquisition cost (CAC) needs to leave room for profit. If a channel costs more per customer than you make, that channel doesn't work alone—you need cheaper volume or higher retention.
Rough CAC rules of thumb (these vary widely by business; measure your own):
- Local services: often higher per customer, but each customer is worth more
- E-commerce: usually lower per customer
- Subscription/SaaS: depends heavily on tier and retention
- B2B: often the highest per qualified lead
For paid ads specifically, aim to stay profitable on the first transaction—or at minimum, break even within a few months.
Framework 3: Opportunity Cost
Start small and prove the channel works before scaling.
New business owners often ask: "Should I spend a few hundred or a few thousand per month?" The answer: start small and measure for about 30 days. Watch:
- Cost per click
- Cost per conversion
- Customer lifetime value once they arrive
If a modest test brings qualified leads at a cost you can profit on, keep going. If it brings clicks but no sales, pause and regroup.
This is why "more money" isn't the question—channel fit is.
Where to Spend: Houston-Specific Options
Google Ads (Search + Local Services): Best for intent-driven searches ("roofer near me", "tax accountant Houston"). Costs vary widely by keyword, and competitive home-services keywords can run high—often well over $10 per click in major metros. Local Services Ads, if you're eligible, let you pay per lead rather than per click.
Meta (Facebook + Instagram): Best for awareness and repeat customers. Typically lower cost-per-click but lower conversion rates. Great for local retail, restaurants, and salons.
YouTube: Best for high-consideration buys (home improvement, automotive, education). Longer sales cycle, but good for building trust.
Google Business Profile: Free. Non-negotiable for local service businesses. Reviews and local-pack rankings often matter more than paid ads for many Houston plumbers, electricians, and HVAC companies.
TikTok + LinkedIn: TikTok if your audience skews younger; LinkedIn if you're B2B. Both have narrower targeting and different cost dynamics than Meta.
Red Flags
- Spending on ads before product-market fit. Test with free channels (Google Business, organic social, referrals) first.
- Paying for brand awareness with no conversion tracking. You can't measure ROI if you don't know where customers come from.
- Copying a competitor's budget. Their margins, retention, and CAC are different.
- Hiring an agency without knowing your CAC target. Agencies scale what works; if you don't know what success looks like, neither do they.
Next Steps
Start by identifying your CAC in writing. Run a roughly 30-day test on one channel with full tracking. Compare the cost per acquisition against your profit per customer. Scale only if profitable.
If you're building ads for a Houston business or want to stress-test your CAC math, the BEM community has playbooks for Google Local Services, conversion tracking, and Meta creative audits. Reach out or check the resource library.