The 5% Rule Was Never Written For You.

What percentage of revenue should a contractor spend on marketing?

There is no percentage that survives contact with your close rate. The honest answer is to calculate what your growth target costs in leads, then check that figure against revenue — if it lands between 3% and 8% you are in ordinary territory, and if it lands at 15% your close rate or your cost per lead is the problem, not your budget.

Why does this tool argue against the 5-10% rule?

Because the rule is borrowed from cross-industry marketing surveys of large firms and was never calibrated to trades. IRS Statistics of Income data for tax year 2023 shows 2,521,516 specialty trade contractors filing Schedule C deducted advertising equal to 0.596% of business receipts. The rule and the reality are an order of magnitude apart.

Does 0.6% mean I should only spend 0.6% of revenue?

No, and reading it that way inverts the point. It is a description of what the self-employed half of the trade does, not a recommendation — and most of those filers are one-truck operators running on word of mouth. Use it to understand that the 5-10% advice describes almost nobody in your industry, then size your own budget from your own funnel.

Why is the IRS figure so much lower than every marketing article?

Three reasons, and all of them matter. It covers Schedule C sole proprietors only, so the larger S-corporation contractors who spend most heavily are absent. It counts only what landed on the advertising line, while agency retainers often sit under legal and professional services. And it cannot see the owner's own selling time, which is the largest marketing cost in a small contracting business.

Which number should I actually budget to — top-down or bottom-up?

Bottom-up, every time, with top-down as the sanity check. The bottom-up figure is derived from your close rate, your ticket and a real cost per lead, so it describes your business. The percentage describes an average of businesses that are not yours, and its only genuine use is telling you when the bottom-up answer has gone somewhere strange.

What if the two budgets disagree by a lot?

That gap is the finding, not an error. When bottom-up runs far above top-down, your growth target is priced beyond what your funnel can convert — and raising the budget is the most expensive of the three available fixes. Improving the close rate reduces the required spend proportionally and costs nothing in media.

Should the marketing budget be a percentage of revenue or of gross profit?

Gross profit is the more honest denominator, because that is the pot the spend actually comes out of. A 45%-margin service business and a 22%-margin installation business with identical revenue can afford very different budgets, and a revenue percentage hides that completely. This tool shows gross profit on the new work for exactly that reason.

Why does the planner subtract repeat and referral revenue?

Because marketing does not have to buy revenue that arrives on its own. If a quarter of your growth comes from existing customers and word of mouth, budgeting to fund all of it means overpaying for leads you were going to get anyway — one of the most common ways contractor budgets get inflated without anyone noticing.

What cost per lead should I put in?

Your own, if you have thirty days of data. The default is $41.26, the Home & Home Improvement median across 726 US Meta lead campaigns (WordStream/LocaliQ). Paid search runs far higher at $90.92 per lead across 13,474 campaigns, so run the planner once per channel rather than blending them.

Does the return-per-dollar figure include overhead?

No, and that is deliberate. It shows gross profit on the new work divided by media spend, so anything under 1.0x is losing money before overhead is even considered. A healthy contractor wants that figure well above 3x, because overhead, management fees and the jobs that fall through all come out of the same gap.

How does this differ from the Ad Budget Forecaster?

The forecaster starts from a budget you pick and projects it forward over three to twenty-four months. This starts from a revenue goal and works out what that goal costs, then checks it against a percentage rule. Use this one to set the number and the forecaster to model what it compounds into.

How does this differ from the Lead Capacity Planner?

The capacity planner works up from what your crew can physically complete and returns a ceiling. This works down from what you want revenue to do and returns a requirement. Where the requirement exceeds the ceiling, the capacity planner wins the argument — you cannot buy growth your schedule cannot deliver.

Should a new contractor spend more than an established one?

Almost always, because a new business has no repeat base and no referral flow to subtract. Set the repeat and referral share near zero and the required budget rises sharply — that is not a flaw in the model, it is the actual cost of not yet having customers.

Does the budget include agency management fees?

Not by default. The bottom-up figure is media spend only, so add management fees on top before comparing it against a percentage of revenue — otherwise you are comparing a media number with a total-marketing number and the gap will look smaller than it is.

Are any of these numbers Elev8 Operations data?

None of them. The advertising table is computed from IRS Statistics of Income tax-year-2023 filings, the cost-per-lead defaults are from WordStream/LocaliQ's published benchmarks, and the ticket sanity check is from SearchLight's LSA dataset. Every input describing your business comes from you, because no dataset knows your close rate.