Are you tired of waiting for the phone to ring, hoping that a steady flow of referrals will keep your building company afloat?
It’s a risky game when growth depends on chance, especially in a competitive market where the builders in control are the ones investing in consistent lead generation.
And yet, many builders feel uncertain about how much they should spend on advertising, where to invest it, and—most importantly—how to know if it’s paying off.
Sound familiar? Keep reading.
I’ll walk through the essential steps for setting a profitable marketing budget, why it’s a game-changer for your margins, and the exact percentage of revenue you should be reinvesting to see results you can count on.
Before we get into the specifics, let’s start with the why.
Most builders rely heavily on referrals to start out, which is great… for a while.
But referrals are inconsistent, and growth becomes challenging if you can’t control demand.
The future of your business is too important to leave to chance. Paid advertising is the key to predictable growth—but it’s different from referrals and comes with its own set of challenges, like cold leads, lower conversion rates, and a longer sales cycle.
But here’s the truth: That’s okay. Cold leads don’t behave like referrals, and if you go in expecting that, you’ll avoid frustration and focus on building a scalable, controllable lead flow.
So, what’s the right number? After analysing data from nearly 2,000 building companies, the answer is clear: 3% of your revenue.
This isn’t just theory—it’s what works. Here’s how it breaks down:
If you’re building a home with a $750,000 price tag, that translates to $22,500 in marketing expenses.
That may sound like a lot, but the builders who invest see results. With a steady flow of residential construction leads, that investment pays off in higher profit margins and increased control over growth. Which brings us to a critical point…
Here’s something many builders overlook: demand drives margins.
When you’re generating more leads than you can handle, you have options. You can choose to grow your business and take on more projects, or you can raise your prices. In either case, you’re in control—and that’s the real power of a healthy home builder marketing strategy.
But here’s the flip side: if you stop advertising or try to cut corners, you’ll reduce demand, and your margins will suffer. It’s that simple. High demand allows you to charge more and operate more efficiently. Lower demand forces you to make compromises—often at the expense of your profit margins.
So even if you feel like you have enough leads right now, don’t stop advertising. The builders who continued to invest in marketing—even during the COVID boom when leads were pouring in—are the ones still booked out 12 to 18 months in advance.
Now that you know how much to spend, the next question is: how do you know if your marketing is working?
It all comes down to cost per lead. And for builders, the typical conversion rate for cold leads is 1%—meaning you’ll convert 1 out of every 100 cold leads into a contract. If you’re hitting that number, you’re on the right track.
Let’s use the $750,000 build as an example. With a 1% conversion rate, you’ll need to generate 100 leads to land one contract. That means you can spend up to $225 per qualified lead if you consider the $22,500 you’ve invested into marketing as a portion of that project.
A key thing to recognise here is that, in this scenario, $225 needs to buy you a qualified lead—not a tire kicker!
Here’s where many builders get tripped up: cashflow.
Even if you’re converting leads and your marketing budget makes sense on paper, you can run into trouble if you don’t account for the length of your sales cycle. Builders often have a longer sales cycle, which means it can take months before you see a return on your advertising investment.
This is why you need to have enough cash reserves to keep buying leads until those leads start converting into contracts. If you spend all your cash on advertising and don’t account for the time it takes to nurture leads, you’ll hit a wall.
That’s why having a self-liquidating strategy, like the design and build model, is so effective. You start covering your advertising costs the moment a client pays for the concept or preliminary design stage, rather than waiting until the full build is contracted.
Setting a marketing budget is just one part of building a profitable construction company. You also need to know how to generate leads, convert them with a repeatable sales process, and grow your margins.
To learn how, download our free Marketing Blueprint For Builders.
Click the link below to get your copy and start implementing the strategies that will drive your business forward.