Where the percentage rule comes from
The number most small businesses start from traces back to the U.S. Small Business Administration: roughly 7–8% of gross revenue on marketing for companies under $5 million in revenue, on the assumption of net margins in the 10–12% range.
Published surveys land nearby without agreeing on a figure. Gartner's 2024 CMO survey puts average marketing spend near 8% of company revenue. Deloitte's CMO survey reports about 10% across industries and 10.4% for B2B services. The sources also disagree about the B2B-versus-B2C split — some put B2C higher, others place B2B services at 8–12%. Any of these is a starting range, not a target.
Budget = annual revenue × marketing %.
For the longer version that works backwards from a revenue target, see How to Set a Marketing Budget.
Run the budget against your own CAC
A percentage is a plan. Your CAC decides whether the plan is possible.
$740,000 of revenue at 9% is $66,600, or $5,550 a month. If CAC is $310, that buys about 215 new customers over the year. If CAC is $520, the same budget buys 128 — and no adjustment to the percentage closes that gap. Either acquisition gets cheaper or the growth target moves.
Do this arithmetic before the budget is approved, not after the first quarter misses.
What the budget does not decide
Two businesses with the same revenue and the same percentage can spend it on completely different things, and the percentage has no opinion about which.
The usual allocation funds the channels with a known ROAS first and holds 10–20% back as a test pool for new channels and creative. That reserve is the first thing cut when a quarter runs short, which is also why growth stalls the year after.
For B2B, the efficiency check is the SaaS magic number: (this quarter's revenue − last quarter's revenue) × 4 ÷ last quarter's sales and marketing spend. Above 0.75 means the spend is converting well enough to increase. Below 0.5 means the money is going into a funnel that is not working yet, and more of it will not help. The formula deliberately leaves gross margin out, which is what separates it from CAC payback — read them next to each other rather than choosing one.
If you are pre-revenue
A percentage of revenue is undefined when there is no revenue, which is why seed-stage companies budget a fixed monthly number instead. Set that number by working backwards from what a customer is worth. If LTV is $2,400 and you can live with a 12-month payback, the ceiling on CAC is $200, and the budget is whatever buys the number of customers the plan calls for at that CAC.
LTV:CAC is what keeps this honest. A budget planned without it is a spending target with no floor.