I was in a workshop with a number of ecommerce business owners and directors in the Home & Garden industry and this question was the number one asked.

“What % of my revenue should I spend on Google Ads?”

If you want the quick answer most of the people in the room said around 10% of revenue. As a rough guide that’s your number but it actually depends on what stage your business is in. I’ll explain below why you may be leaving money and customers on the table that your competitors may be getting instead of you.

There is no universal % that guarantees success.

But that doesn’t mean you’re flying blind. In this post, I’ll share:

• Why the “10% of revenue” rule can be dangerous.
• My biggest win and mistake with ad budgets.
• A framework you can use to decide what’s right for your business.
• The counterintuitive lesson most advertisers miss.

The issue with “% of Revenue” Rule

A lot of businesses anchor on spending 10% of revenue on ads. It sounds neat, but it’s overly simplistic.

Consider two companies:

• Company A sells high-margin products with 60% profit margins.
• Company B runs on 15% margins.

If both spend 10% of revenue on ads, Company A is doing well leaving plenty of revenue left to contribute to covering other costs to the business such as overheads, salaries. This cash flow is fuelling the company’s growth however following the same rule Company B has really small margins and risks wiping out profits as it doesn’t have a big enough cushion.

If you want the business to grow you need to sit down and work out how much the revenue the business wants to grow by. Whoever is managing your advertising accounts should be able to plan out extra advertising spend that you will need to hit your target revenue number. If they cant do this im happy to help with this. Just send me an email, I will do this work free of charge.

How I like to work

Quite often in a company the finance director is wary of increasing the budgets, part of the work I do is to present to finance data on how we can grow the business. As mentioned previously I can work out how much uplift in revenue that can be expected by increasing spend.

With a number of clients as long as the ROI and profit coming from Google ads hits a pre-arranged number then they are happy for me to keep scaling up budgets. For example if we are hitting an ROI of 4 and profit on advertising spend is 2 then we can keep scaling up the Google ads account.

Keep this in mind

Sometimes when scaling up spend the uplift isn’t always shown in the advertising platform data (accurate tracking is very difficult) so I work with the Finance director to monitor overall business revenue and profitability. Theres been a number of instances where in the past we have solely used in platform data which paints a different picture than whats actually happening in the business.

For example with one lighting company I work with our Google ads platform numbers were showing that our ROI and revenue was below our target, however the business overall was doing well. We plotted historically which months the business was doing well vs poor months performance. Sure enough when we dropped Google ads spend and clicks the overall business revenue and profitability went down as we weren’t accurately tracking sales. This is another post in itself but the point is you need to not only use in platform data in reporting performance but overall figures.

My Biggest Mistake: Capping Spend Too Early

Following on from my point above. Once I kept a client’s ad budget too tightly linked to revenue growth.

We only increased spend as business revenue climbed — but what we didn’t account for was that Google Ads was the growth driver in the first place. By capping spend, we slowed their ability to capture demand, and competitors swooped in and we lost market share.

The Framework That Actually Works

 Set Profitability Targets

Decide what matters most for your business:

• ROAS (Return on Ad Spend) – revenue ÷ ad spend.
• CAC vs. LTV (Customer Acquisition Cost vs. Lifetime Value) – are you paying too much upfront for a customer who never returns?
• Net Margins – is your business model sustainable?