How much should a service business spend on marketing?
The usual answer is a percentage of revenue. That’s a useful place to start, but it doesn’t solve the whole problem.
If someone tells a business owner to spend 5% of revenue on marketing, what does that actually mean when invoices start getting paid? Is the owner supposed to look at the bank account every month and decide whether they can afford some SEO, photography, advertising or a new website?
That is how a lot of small businesses end up handling marketing. Some months they spend almost nothing. Other months they approve a large expense because something sounds promising. There isn’t necessarily a connection between the amount the business earns and the amount it has made available for marketing.
I think there is a more useful way to manage it.
TL;DR
For an established service business, 5% of collected revenue is a reasonable starting point for a marketing budget. BDC suggests approximately 2% to 5% for B2B companies and 5% to 10% for B2C companies, so 5% is a useful middle ground for many contractors and service businesses.
Rather than deciding what to spend on marketing every month, allocate that percentage of collected revenue to a Marketing Reserve. Marketing is still overhead, but managing it with some of the same discipline used for job costing gives the business a visible amount to spend against and keeps marketing from being either starved or allowed to become an open-ended expense.
What Percentage of Revenue Should Go to Marketing?
There isn’t one percentage that works for every business.
BDC recommends starting with revenue and notes that B2B businesses commonly spend about 2% to 5% of revenue on marketing, while B2C businesses are often closer to 5% to 10%. That difference makes sense. A commercial subcontractor pursuing a relatively small number of large projects does not need to reach the same number of potential customers as a residential HVAC company trying to generate a steady flow of homeowner leads.
For some broader context, Gartner’s 2025 CMO Spend Survey found average marketing budgets of 7.7% of company revenue. Most of the companies in that survey were very large businesses, so I wouldn’t use 7.7% as a benchmark for a local contractor. It does, however, show that allocating several percentage points of revenue to marketing isn’t unusual.
For many established service businesses, I would start at 5% of revenue.
| Marketing Allocation | When It May Make Sense |
|---|---|
| 2% to 3% | An established B2B business with strong repeat and referral work, limited growth goals, or relatively little need to generate new demand. |
| 5% | A practical starting point for an established service business that wants consistent marketing and continued growth. |
| 7% to 10% | A more consumer-facing business, a company pursuing aggressive growth, or a business entering a new market and needing to build new demand. |
Margins, capacity and growth plans still have to make sense. If a company is already struggling to deliver the work it has, blindly increasing lead generation because a benchmark says it should spend 10% would be a strange business decision.
The percentage is a starting framework. The more useful question is what the business does with that percentage once it chooses one, which is where a clear marketing strategy matters.
Marketing Is Different From Most Other Overhead
Marketing is technically an overhead expense, but it behaves differently from many of the other expenses sitting in that category.
Consider accounting. There is a certain amount of accounting your business needs. Your accountant or bookkeeper charges you for the work, and you pay the bill.
Insurance is similar. Your policy costs a defined amount. You may shop around or adjust your coverage, but eventually there is a premium that needs to be paid.
The same applies to rent, many software subscriptions, phone bills and plenty of other overhead costs. There is usually some reasonably identifiable amount the business needs to spend.
Marketing doesn’t have that natural limit.
You could spend $1,000 on marketing this month. You could spend $10,000. You could spend $100,000. There will almost always be another advertising campaign you could run, another trade show you could attend, another piece of content you could create, another website improvement you could make or another market you could pursue.
The opposite problem is just as common. Because much of that spending is discretionary, you could also spend almost nothing.
That puts marketing in an unusual position. Unlike an insurance bill that eventually arrives and has to be paid, nobody sends you an invoice saying, “Your company has underspent on marketing by $18,000 this year.”
If cash gets tight, marketing is easy to delay. If cash is plentiful and someone presents an exciting idea, marketing can also become surprisingly easy to overspend on.
A Marketing Reserve puts some financial discipline around an expense that otherwise has very loose boundaries.
The 5% Marketing Reserve Rule
The rule is simple:
Every time the business collects revenue, allocate 5% of it to a Marketing Reserve.
If you collect $20,000 from a customer, allocate $1,000.
If you collect $100,000 during the month, allocate $5,000.
If the business collects $1 million over the year, it has allocated $50,000 toward marketing.
I prefer using collected revenue rather than invoiced revenue for this system. You are allocating cash as it actually enters the business rather than creating a reserve based on money a customer may not pay for another 30, 60 or 90 days.
Sales taxes such as HST should also be excluded. That isn’t your revenue. You are collecting it on behalf of the government.
Think About Marketing Like a Job Cost, Even Though It Isn’t One
For accounting purposes, marketing is overhead. I wouldn’t recommend putting marketing into your project accounting and pretending it is a direct cost of completing a particular job.
But there is something useful about applying job-cost thinking to marketing.
Contractors are generally very good at recognizing that a job has to fund the things required to complete that job. If the estimate includes $20,000 of material, the owner doesn’t finish the project and then ask whether there happens to be enough money left to pay the supplier.
The cost was anticipated from the beginning.
Marketing deserves some of that same discipline, even though it sits in overhead.
You got your current job somehow. Maybe the customer found you through Google. Maybe someone referred you. Maybe you have spent twenty years building a reputation in your market. Maybe they had driven past your trucks for years. Maybe your website showed them projects similar to theirs. Maybe someone on your team had been maintaining the relationship long before an opportunity appeared.
Whatever the path was, the business had to create the conditions that allowed that customer to find you, trust you and eventually hire you. That mix of visibility, proof and trust is the foundation of service business marketing.
The revenue from today’s work can help fund the process of winning tomorrow’s work.
Every job should help pay for the next job.
This is an internal management concept. You do not add a visible “5% marketing charge” to the customer’s proposal or invoice. The customer doesn’t need to see your internal allocation any more than they need a breakdown of every dollar you spend on your accountant, CRM or office insurance.
Your pricing simply needs to produce enough revenue and margin to support the company’s overhead and profit requirements. The Marketing Reserve is how you intentionally manage part of that overhead once the money comes in.
Why Leaving Marketing in General Overhead Can Cause Problems
If marketing remains nothing more than another line somewhere inside a large overhead budget, it can be surprisingly difficult to tell how much money the business has actually decided to make available for it.
Imagine a contractor with $100,000 in the operating account.
A marketing company recommends an $8,000 website improvement. The owner looks at the $8,000 price tag, then looks at everything else going on in the business and thinks, “That’s a lot of money. Maybe we’ll do it later.”
That decision may be perfectly reasonable. The problem is that there is no financial framework helping the owner make it.
Now imagine the same company has been allocating 5% of collected revenue and has a $22,000 Marketing Reserve.
The conversation changes.
Instead of asking whether the business can stomach an $8,000 marketing expense, the question becomes whether this particular $8,000 investment is a good use of the $22,000 already allocated to marketing.
It can also work in the other direction. If someone proposes a $30,000 campaign and the business only has $12,000 allocated, that is useful information. The company can still decide to spend more, but it is knowingly choosing to go beyond the marketing budget rather than allowing marketing spending to grow without a boundary.
The reserve creates both a floor and a ceiling.
It protects marketing from constantly losing its funding to whatever expense happens to appear that month, while also giving the owner a reference point for deciding when marketing spending is getting ahead of the business.
You Don’t Necessarily Need Another Bank Account
A Marketing Reserve does not have to mean opening another bank account and physically transferring money every time a customer pays an invoice.
You can do that if it helps you manage cash, but the more important part is having a system that clearly tracks the allocation.
Think of it as another layer over your actual cash.
If there is $100,000 in the operating account and your financial system says $18,000 is allocated to marketing, you can still see the full $100,000 in the bank. Internally, however, you know that the company has earmarked $18,000 of it for marketing.
The exact mechanics will depend on your accounting and cash-management system. Your accountant or bookkeeper can help determine the cleanest way to track it without confusing your formal accounting records.
The Reserve Is Not a Spending Target
Allocating 5% does not mean you have to spend 5% every month or even every year.
Suppose the business collects $1 million and allocates $50,000 to marketing. During the year, it spends $34,000.
There is no reason to scramble in December looking for another $16,000 worth of things to buy simply because the budget exists.
Leave it in the reserve.
Maybe next year you decide to rebuild the website. Maybe you want professional photography of several completed projects. Maybe there is an opportunity to enter a neighbouring market. Maybe there simply isn’t a worthwhile use for the money yet.
A reserve gives you permission to wait for a good investment.
It also helps with marketing expenses that do not occur evenly throughout the year. A website redevelopment might require a significant one-time investment. A trade show might happen once a year. Professional project photography might be concentrated around the completion of several projects.
The business can accumulate funds during quieter periods rather than forcing every marketing expense into an arbitrary monthly budget.
What If the Business Needs the Money?
The money is still part of the business.
If a truck needs an unexpected $10,000 repair and there is cash sitting in the Marketing Reserve, I am not suggesting you miss payroll while protecting the marketing budget.
Use the money if the business genuinely needs it.
But record what happened.
If the Marketing Reserve had $25,000 and the business used $10,000 for an emergency, your internal system should still show that $10,000 was taken from the reserve and needs to be replenished.
That creates a different behaviour from simply allowing marketing to disappear whenever cash gets tight.
The business made a deliberate decision to borrow from a budgeted category. It can then decide how quickly to rebuild it as new revenue comes in.
This would normally be an internal management record rather than a formal accounting liability, so the exact treatment should be discussed with whoever manages your books.
When 5% Should Change
After using the system for a while, you may decide 5% isn’t right for your business.
A mature commercial contractor with strong relationships, repeat clients and a small addressable market might discover that 3% provides more than enough money to maintain its website, produce strong project material, support business development and stay visible in its market.
A residential service company trying to grow quickly across several cities might find that 5% consistently limits campaigns that are producing profitable work. Moving toward 7% or 8% could make sense.
The business should also look at capacity. If the company can’t find enough technicians to serve existing customers, increasing the marketing percentage may solve the wrong problem.
The original percentage gives you a starting discipline. Actual results should eventually help determine whether that percentage changes.
Where to Start
If your business currently has no clear marketing budget, I would start with the 5% rule.
Beginning with the next customer payment, allocate 5% of collected revenue, excluding sales tax, to a Marketing Reserve. Keep a running balance. Record marketing expenses against it. Allow unused money to carry forward.
Then use that reserve when marketing decisions come up. If you’re deciding what deserves funding first, our 3 marketing musts for local service businesses are a practical place to start.
You will still need to decide whether an advertising campaign is worthwhile, whether your website actually needs rebuilding, whether SEO is producing useful visibility, or whether attending a trade show makes sense. Having money allocated doesn’t make every marketing idea a good one.
It does give you a much better framework for making those decisions.
Instead of marketing being whatever the business feels comfortable spending that month, it becomes something the company intentionally funds as it earns revenue.
Today’s work pays the bills and produces profit. A small portion can also help create tomorrow’s work.
