How to set a marketing budget for a small business

Start from what a customer is worth

Work out the average profit from a new customer over the time they stay with you, not just the first sale. A bookkeeping client who stays for years is worth far more than one invoice. A one-off repair is worth the margin on that job plus any referrals.

Once you know that figure, you know the most you could pay to win a customer and still come out ahead. Your accountant can help with the profit calculation, which should include the cost of delivering the work.

Pick a way to size the total

Some owners set marketing as a percentage of revenue, with the right percentage depending on industry and growth goals. Others work backward from a target: how many new customers do I need, what do I expect to pay for each, and what does that add up to. Consider a higher level when launching or growing, and lower when you are full.

Whichever method you use, write the number down and review it each quarter. Check with your accountant on how marketing costs are treated for your taxes.

Split it across three buckets

Foundation: your website, Business Profile, branding and tracking, which everything else depends on. Steady channels: reviews, email, content, referral programs and local search work that builds over time. Paid tests: ads or sponsorships you try for a defined period.

A new business may put more into the foundation. An established one may spend most on steady channels and a small amount on tests.

Test before committing

Give each new channel a fixed trial: a defined budget, a start and end date, and a measure of success such as cost per lead. At the end, decide whether to continue, adjust or stop. Avoid annual contracts for services you have not tested.

Count your own time too. A free channel that eats ten hours a week has a cost.

Track cost per customer

Ask every new customer how they found you and record it in one place. Combine that with call and form tracking. Divide spend by customers won, per channel. Some channels, like referrals, will look cheap but cannot be scaled at will. Others, like ads, scale but cost more.

Remember that people often see you in several places before they call, so credit is rarely clean. Look for patterns over several months, not single weeks.

Keep the tracking sheet simple: month, channel, spend, leads, customers. After a year it is a valuable record that no vendor can give you.

Protect the budget from bad deals

Be skeptical of promises of guaranteed rankings, pressure to sign immediately and reports full of impressions with no leads. Ask any vendor what you will get, how it will be measured and what happens if it does not work. Keep copies of every agreement and know who owns the accounts and content created with your money.

Leave a small reserve for opportunities and for fixing what breaks.

Common questions

This guide is general information. Search engines change how they work and their guidelines; check Google's current documentation for your situation. Nobody can guarantee a ranking.