The most common answer to this question is a percentage of revenue — usually somewhere between 5% and 10%. It's a tidy rule and it's close to useless for a local business, because it tells you nothing about whether that money can actually buy you customers in your market.
A better approach: work backwards from what a customer is worth to you, and forwards from what a lead costs in your category. Where those two numbers meet is your budget.
Start with four numbers you already have
You don't need a analytics platform for this. You need a rough answer to four questions, and rough is fine.
- 1Average job value — what does a typical customer pay you, once?
- 2Gross margin — what proportion of that do you keep after direct costs?
- 3Close rate — out of ten genuine enquiries, how many become customers?
- 4Repeat value — over a couple of years, how much does a typical customer spend in total?
Say you're a residential HVAC contractor. Average job $2,400. Gross margin 40%, so $960 in gross profit. You close 3 of every 10 qualified enquiries. Many customers come back for maintenance, but ignore that for now — build the case on the first job alone and treat repeat business as upside.
Calculate what you can afford to pay for a lead
If you close 3 in 10, then ten leads produce three jobs and $2,880 in gross profit. Divide by ten and each lead is worth $288 in gross profit terms.
That's your ceiling, not your target. If you're paying $288 a lead you're breaking even before overheads and getting nothing for the effort. A sensible target is a third of that ceiling, so around $96 per lead. At that price, every $960 of gross profit costs you $288 in advertising and leaves $672 toward overheads and profit.
Now check it against reality
Your target cost per lead only matters if it's achievable in your market. Broad ranges for local service businesses in the US and Canada:
| Category | Typical cost per lead | Suggested starting spend |
|---|---|---|
| Home services (HVAC, plumbing, roofing) | $45 – $120 | $1,500 – $3,000/mo |
| Dental & healthcare | $60 – $180 | $1,500 – $4,000/mo |
| Legal | $150 – $600 | $3,000 – $10,000/mo |
| Beauty, med spa, wellness | $25 – $80 | $800 – $2,000/mo |
| Restaurants & local retail | $8 – $30 | $500 – $1,500/mo |
| Real estate | $40 – $200 | $1,000 – $4,000/mo |
If your target cost per lead sits comfortably above your category's typical range, paid ads should work well for you. If it sits below, you have a margin problem or a close-rate problem, and more ad spend will make it worse rather than better.
The minimum that makes sense
There's a floor below which paid advertising struggles regardless of your maths, because the platforms need conversion data to optimise. Under roughly 30 conversions a month, campaigns spend a long time in the learning phase and performance stays volatile.
In practice that means about $1,000/mo in ad spend for most local service categories on Google, and around $600/mo on Meta. Below that you can still advertise, but expect slower learning and more month-to-month variance. It's often better to run one platform properly at $1,000 than two platforms badly at $500 each.
Budget for management separately
Whether you hire an agency, an employee or do it yourself, managing ads costs something. Be honest about it in your planning.
- Agency management typically runs $300–$2,000/mo for local businesses, depending on scope and spend level.
- An in-house marketing hire is $45,000+ a year, which only makes sense at significant scale.
- Doing it yourself costs 5–10 hours a month plus the learning curve — real money if those hours could be billable.
Ad spend and management are separate line items, and any agency worth hiring will keep them separate. If someone quotes you a single blended figure, ask precisely how much goes to the platforms and how much they keep.
A sensible ramp
Don't start at your target number. Start below it, prove the mechanics work, then scale into it.
- 1Months 1–2: start at roughly 60% of your calculated budget. The goal is data and a working tracking setup, not maximum volume.
- 2Month 3: review actual cost per lead against your target. If you're within range, increase to 100%.
- 3Months 4–6: scale in 20–25% increments while cost per lead holds. Sharp jumps disrupt the learning phase.
- 4Month 6+: raise the ceiling only while the economics hold. When cost per lead climbs consistently as you spend more, you've found your market's limit.
When to spend nothing at all
Sometimes the honest answer is zero, at least for now. Hold off if you have no way to track conversions, no page for traffic to land on, no capacity to serve more customers, or nobody answering the phone during business hours. Paid ads amplify whatever system already exists. If the system is broken, ads make the breakage more expensive.