How much shoulda small businessspend on marketing?

Most owners set a marketing budget one of two ways: whatever is left over, or whatever the last agency asked for. Neither is a plan. A budget should come from what a new customer is worth to you and how many of them you want, and the arithmetic is simpler than it sounds.

The percentages everybody quotes

The figures most often cited are somewhere between five and ten percent of revenue for an established business, and more for one that is new or trying to grow quickly. Those numbers are a starting point for conversation, not a rule. A dental practice with high lifetime customer value and a landscaper competing on price should not be spending the same share.

Start from what a customer is worth

Work out, roughly, what an average new customer spends with you in a year, and how many years they typically stay. Multiply the two and take your gross margin on it. That figure is the most you could sensibly pay to acquire one customer. Most businesses are comfortable spending a quarter to a third of it.

Then decide how many new customers you actually want this year, and whether you have the capacity to serve them. Multiply. That is your budget, and it is the first time most owners see a number that is tied to something real.

Split it between building and buying

Marketing spend falls into two kinds. Buying is advertising: pay per click, social ads, sponsored listings. It produces results while you pay and stops when you stop. Building is the website, search optimisation, content, reviews and your Google profile. It is slower, and it keeps producing after the work is paid for.

A business with no foundation should build first, because advertising sends people to a website that then has to convert them. A business with a good site and a strong profile can shift more toward buying, because each dollar of ads lands on something that works.

Do not spread it too thin

A small budget split across six channels does nothing well. Two channels done properly beat six done occasionally. For most local businesses the first two are the Google Business Profile and the website, followed by either paid search or reviews depending on the trade.

Count the time, not just the money

If you or a staff member spend ten hours a month on social media, that is a cost. It belongs in the budget so it can be compared with paying somebody to do it, or with not doing it at all.

Measure it, then adjust

Every dollar should be traceable to an enquiry, and every enquiry to a source. Call tracking, form tracking and a monthly look at the numbers are enough. After three months you will know which channel produces customers at the lowest cost, and the budget should move toward it.

When to spend more than the formula says

Opening a second location, entering a new town, launching a service nobody knows you offer, or recovering from a bad year all justify spending ahead of results for a defined period. Set the period and the target before you start, so you know when to stop.