Sales and marketing budgets are one of the first things business owners question when planning for growth. The common advice that you should spend 10% of revenue sounds simple, but it falls apart quickly when you compare different business models, margins, and customer value.

In this conversation, Brolik founders Jason Brewer and Matthew Sommer explain why the 10% rule alone is not enough and why companies often misunderstand what sales and marketing spend actually covers. They talk through everything from sales salaries and website maintenance to content strategy, customer acquisition costs, and the lifetime value behind each relationship. The conversation highlights examples ranging from companies stuck at 3% to startups underinvesting at 10% to industries where strong performance requires much higher spending.

If you have ever wondered how much you should really be investing, whether your current spending aligns with your goals, or how high-growth companies justify spending ahead of revenue, this video breaks it all down with practical and usable logic.

Video Transcript:

Jason Brewer (00:00) - Why Marketing Spend Isn’t One-Size-Fits-All

I have this issue where when I hear that you should be spending 10% of your budget on sales and marketing, I think, this is marketing 101, this is old school thinking. And then we have someone who comes to us that is spending 3% of their overall budget on sales and marketing, and they're doing well, but they're coming to us for a reason. And then you've got the other end of the spectrum where you've got a startup that's spending 10%, but their budget's so small and they need to be spending 30%. It's like, how do you people come to us and are we spending too much? Are we spending too little? What should we be spending on marketing, advertising, sales and marketing as a whole? What is your take on that?

Matthew Sommer:

I've come face-to-face with this. A couple of months ago, I was at Happy Hour with one of our friends who's a business owner here in Philadelphia, a very successful business. And I mentioned that to him that I thought, how much of your budget are you spending on sales and marketing? From my perspective, 10% is a decent baseline to be thinking about. And he almost fell off his barstool and he kind of yelled at me.

He said, you can't go telling people that you think that you sound insane. I've thought back on that conversation so many times, am I insane? Does that sound insane? What's it about his business or how he's thinking about his business? That makes that sound so insane. But yeah, I mean, if you're not spending some of your resources to generate new business and opportunities, then how are you going to grow?

And that's not to say that you need to spend 10% of your budget on advertising. When we say sales and marketing, we're talking about your sales team salaries, right? We're talking about potentially your website, maintaining, building on it, your content strategy, and all of these different pieces. But if you're not investing in that aspect of your business, then how do you expect to grow?

I saw a report a few months ago of an analysis of home services businesses. It was a certain segment of home services businesses, I want to say HVAC, and I think it said that the average spend for customer acquisition, sales and marketing and that whole thing, and that amongst the companies that they had audited was 15%. We know that the big luxury brand houses the big, I don't know, Gucci's of the world and things like that. The LVMHs, they'll spend upwards of 30% of their budget on marketing because that's part of what justifies the price of their products.

So it's definitely not a one-size-fits-all answer there. I always kind of start with 10% as a proxy baseline, but I'm also not going to say that there's not businesses and industries and places where less than that is the right answer. But if you're significantly less than that and you're wondering why you're not growing and why you're not getting more opportunities in the door, then that's certainly a place to look. Am I taking this seriously? Am I allocating the resources necessary to make sure that I am generating those opportunities? And a lot of times I think not.

Jason Brewer:

Yeah. I think it comes back to this problem with understanding the economics of your business. And a lot of times when we're throwing around numbers, maybe a company's not used to spending much on paid advertising, but when we look at 'em and say, what's your allowable cost, CAC cost to acquire a customer? What are you willing to spend to acquire that customer? And they look at us kind of weird, and if we throw out a number, sometimes we get a, oh, hell no, a thousand dollars. No, I was thinking 200. But when you really break it down, their lifetime revenue on that customer is 25,000 say. And they're looking at, and we're looking at it and saying, I would spend, look, I'm not, I'm not the business owner over here, but I'd spend three, $4,000 to get scale and to be acquiring customers at a better pace to drive the margin that you have.

So you're underinvesting, and it all comes down to this math equation which we help clients through a lot of the time, is understanding that it's not always bad to spend more to acquire a customer if the math makes sense. And I think that that should inform the number, the percentage to a degree.

Matthew Sommmer (04:39) - How Investment Drives Future Revenue

Sure. You're talking about the unit economics of a customer. How much revenue do I generate off of a new relationship, both in the first transaction and then also in the lifetime of that customer relationship. Now, how much does it cost my business to deliver on that promise to them, to deliver the work that they're paying me for? What percentage of the revenue is that? Is it 60%? Is it 50%? That's something to really make sure that you understand about your business, and then you kind of know what the differential is there. And that differential goes into your general administrative stuff, the cost of your, I don't know, your office and things like that. But then there's a section of that that should be going to your sales and marketing. Here's what I am going to allow myself to spend to generate a new opportunity or customer relationship.

And certainly, there needs to be a chunk in there for profit as well, but if you are taking the entire acquisition allocation of a customer as your profit, then you're limiting the growth and the number of opportunities that you're going to get. And there's going to be a balance point there somewhere where you're actually going to make more money in the long run if you allocate that percentage of the revenue generated for a customer to generating more customers.

Jason Brewer:

And that's the whole conversation, growth versus profitability and having a balance there.

Matthew Sommer:

I mean, that's why you see a lot of, particularly, we saw this recently in SaaS businesses, but that's why you would see a lot of high-growth businesses being willing to run at a huge loss, right? Because if you've calculated the five-year customer value of every customer you acquire to be some significant amount of money, then why wouldn't you spend five times the amount of money acquiring them this year, right now, to the point where you're running a significant loss, right? Because over the next five years, you're going to generate that revenue from them over the long run.

Anyway, that's because those companies are doing that calculation. They have a really good understanding of revenue generated future profits and the acquisition cost, and they can think in that way that says, Hey, if I borrow a million dollars now and spend it to get those customers, now it's going to generate 5 million over the next five years, so why wouldn't I make that bet?

Jason Brewer:

We went through this, we saw it ourselves. We were spending probably 5% of our budget on sales and marketing for years, and we said, we got to stop this. We got to treat ourselves like a client. And we got that up to 10, 11, 12% depending on the year, and immediately saw the impact. And we are consistently calculating the return on that investment. In lifetime, it's 6x on that increase,

Matthew Sommer:

But it takes several years to get there.

Jason Brewer:

Yeah. You have to have a belief that you can get there and that it's worth investing more, and that you will be empowered by that increase in investment. And I think not everyone believes that or has felt that before. So it's hard to sometimes convince someone who has not been down that road to.