How much should a small business spend on marketing?
How much should a small business spend on marketing? Enough to win the customers it needs, at a cost its margin can repay. That figure comes from profit per customer, business stage and capacity to deliver, so a fixed percentage of revenue is only a rough check. It shouldn’t be the plan.
Here’s how we’d work it out, without a spreadsheet full of guesses.
How much should a small business spend on marketing? Start with one customer
Work out the gross profit from an average customer: what you earn, less the direct cost of delivering it. Include repeat purchases if they’re real and you can count them. Then decide how much of that profit you’re willing to give up to win the customer. That’s your allowable cost per customer.
Margin changes everything. Take two businesses selling at the same price. One keeps 60 per cent of each sale as gross profit. The other keeps 20 per cent. If winning a customer costs a third of the sale price, the first has about 27 per cent left to run the business. The second loses about 13 per cent on every sale. Same marketing, opposite outcome. A percentage of revenue hides that completely.
Turn it into a small business marketing budget
The government’s marketing plan guide makes the same point in plainer terms: know how much you have, and only spend on activities that contribute to your goals. Its template includes a basic budget, which is a good place to start.
- Set the target in customers. How many new customers do you want this year, and how many can you actually serve?
- Work backwards. If you win one job from every four enquiries, ten customers means forty enquiries.
- Set the ceiling. New customers multiplied by your allowable cost per customer is the most the plan can spend.
- Price the plan. Cost out the activity you think will get there. If it’s above the ceiling, change the plan, the target or the offer.
What the rules of thumb actually tell you
You’ll see percentages of revenue quoted everywhere. Most land in single digits, and few trace back to a source you can open. The closest local one we found comes from WA’s Small Business Development Corporation, which gives a general rule of thumb of three to five percent of actual or expected annual turnover, and says a new business may need more at first. The other figure worth knowing is Gartner’s annual survey of marketing leaders, which put budgets at 7.8 per cent of company revenue. The vast majority of those respondents were very large companies in North America, the UK and Europe. That’s useful if you’re a global brand. It says very little about a Perth business with five staff.
The business.gov.au guide above doesn’t give a figure, and the SBDC calls its own number a rule of thumb. So treat any percentage as a smoke alarm. A new business usually spends a far bigger share because its revenue is small. One living on referrals may spend very little. If your number looks odd against the rules of thumb, recheck your reasoning, then trust the reasoning.
Count everything that is really marketing
Ad spend is the line people remember and the one that’s easiest to see. A realistic budget has five.
- Media: what you pay the platforms.
- Production: photos, video, design and copy.
- Management: an agency, a freelancer or staff time. Each route has its trade-offs, set out in agency, freelancer or in-house.
- Tools: email, scheduling, booking and tracking software.
- Your own hours: the cost most owners leave out, and often the largest.
Where the first money should go
Spend in the order that stops the next dollar leaking.
- Foundations. A website that works on a phone, enquiries you can count and an accurate Google Business Profile.
- Existing demand. People already looking for you, through SEO or Google Ads, whichever suits your timeline and margin.
- Existing customers. Reviews, referrals and repeat business, which tend to cost little and get forgotten.
- New demand. Social media and video that make more people aware of you.
Our page on small business marketing walks through that order in more detail.
Adjust for stage and capacity
| Where you are | How to think about the budget |
|---|---|
| New business | Expect to spend ahead of revenue. Set the amount you can afford to lose and a date to review it |
| Steady | Protect the foundations, then test one new channel at a time against your allowable cost |
| Pushing for growth | Check delivery first. Marketing can only sell the capacity you have |
| Fully booked | Ease off new demand and put money into margin, reviews and the next quiet period |
Spending to create demand you can’t serve is a costly way to earn bad reviews. Decide what comes next, and when, and write it down. A 12-month marketing plan keeps spending tied to dates and goals, so a quiet month doesn’t turn into a panic purchase.
Frequently asked questions
What percentage of revenue should a small business spend on marketing?
There’s no single right percentage. WA’s Small Business Development Corporation suggests three to five percent of turnover as a general rule of thumb. Set the budget from your margin and customer target, then use any percentage only as a rough check.
How much should a new business spend on marketing?
Usually a bigger share of revenue than an established one, because revenue starts small. Decide the total you can afford to lose, and set a date to review it. Put foundations first.
Should wages count in the marketing budget?
Yes, if someone spends real time on marketing. Leaving them out makes in-house work look free and makes outside help look expensive.
Is it better to spend evenly or in bursts?
It depends on when customers buy. Search tends to reward steady presence, because people look when they need you. Seasonal businesses should weight spending towards the weeks before demand rises.