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How Much Should I Invest on Ads?

Figuring out how much to spend on ads can feel like a guessing game. But it doesn’t have to be.

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Author:

Andres Morales Zuleta

Co-Founder and Managing Director

Published on

September 26, 2025

Whether you’re just starting out or scaling fast, there are a few simple frameworks that cut through the noise. In this article, we’ll walk you through three ways to calculate your ad spend and show you how to align it with your growth goals.

Why This Question Matters

Most founders approach ad spend backwards. They ask “what can I afford?” instead of “what return do I need?” That’s why so many burn through budget without a clear path to profit.

The truth is, there’s no single magic percentage. Your ad budget should be tied to what you’re trying to achieve, the cost of acquiring a customer, and how quickly you can make that money back.

Three Ways to Calculate Ad Spend

1. The Performance Marketing Formula (CAC vs LTV)

This is the gold standard for brands running performance-driven campaigns.

CAC (Customer Acquisition Cost): How much does it cost to bring in one paying customer?
Formula: CAC = Total Ad Spend ÷ Number of New Customers
LTV (Lifetime Value): How much profit does an average customer bring in over their lifetime?
Formula (basic): LTV = Average Order Value × Purchase Frequency × Gross Margin
Payback Window: How long before your ad spend turns into cash in hand?

Rule of thumb: Your LTV should be at least 3–4x your CAC. If a customer is worth $600 and you’re spending $150 to acquire them, you’re in a strong position to scale.

Here’s where this becomes a budgeting tool: once you know your CAC, you can set sales goals and back into an ad spend number. For example, if your CAC is $150 and you want to acquire 100 customers this quarter, your ad budget should be around $15,000. As long as your LTV keeps the ratio healthy, you can confidently increase or decrease spend in line with growth targets.

2. The Revenue Percentage Method

If you don’t have detailed CAC and LTV numbers yet, use revenue as your anchor.

Established businesses: Allocate 5–10% of revenue to ads.
New or growth-stage businesses: Plan for 10–20% to accelerate traction.

This keeps ad spend aligned with your size while giving you benchmarks to work from. If there are no clear benchmarks or historic results of paid ads, this is recommended for the first couple of months.

3. The Cash Flow Check

Growth isn’t just math, it’s survival. Before locking in a budget, run the cash flow test:

How fast do you get paid back from a new customer?
If payback is within 30–60 days, you can invest more aggressively.
If it’s 6–12 months, you may need to pace spend or raise capital to sustain growth.

This ensures you’re not investing beyond what your business can handle.

So, What’s the Answer?

There’s no one-size-fits-all budget. Instead:

Use Option 1 if you have reliable CAC and LTV data.
Use Option 2 as a baseline if you’re earlier stage.
Always apply Option 3 to make sure the spend is sustainable.

That’s how you avoid overspending or under-investing and instead turn ads into a predictable growth engine.

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Conclusion

How much you invest in ads depends on your goals, your numbers, and your stage of growth. The smartest brands don’t guess, they calculate. If you want ads to stop being a cost center and start being your most predictable growth engine, the math has to guide the spend.

Key Takeaways

There’s no universal “right” ad budget. It depends on your stage, goals, and cash flow.

Use CAC vs LTV to set spend if you have performance data (aim for 3–4x LTV over CAC).

If you’re earlier stage, use 5–10% of revenue for established brands, or 10–20% for new ventures.

Always run a cash flow check to make sure your ad spend is sustainable in the short term.

FAQs

1. Should I spend the same on every channel?
Not necessarily. Allocate budget where you see the strongest return. That might be Meta ads for one brand and LinkedIn for another. Test, measure, then shift budget accordingly. On early stages, it's recommended to start with the budget with highest potential and then expand your tests to other channels.

2. How long before ads pay off?
It depends on your payback window. Some brands see ROI in 5-30 days, others in 6+ months. That’s why knowing your cash flow is critical.

3. What if my CAC is higher than my LTV?
That’s a red flag. It means you’re losing money per customer. Either improve conversion rates, increase LTV through retention, or lower CAC before scaling spend.

4. Can I start with a small budget?
Yes, but be careful. Spending too little won’t give you enough data to optimize. Aim for a budget that gets you at least 50-100 conversions per month. Usually, brands try to spend a minimum of $1.3k per channel.

5. Is there a “safe” percentage to follow?
If you need a quick rule: 5-10% of revenue for established brands, 10–20% for new ventures. Then adjust as your data becomes clearer.

About the author:

Andres Morales is the co-founder of AMZ Ad Firm, where he transforms strategy into revenue through performance marketing, sharp creative, and flawless execution. With over a decade of experience leading paid media, email, SEO, and CRO for DTC and B2B brands, he knows how to build lean systems and drive scalable growth. A founder at heart, Andres combines data, creativity, and bold thinking to deliver marketing that actually moves the needle.