The standard answer to this is a percentage of revenue. The standard answer is also close to useless below a certain size, and it is worth understanding why before you apply it.
Commonly cited marketing budget benchmarks range from about 5 to 10 percent of revenue for established businesses and higher for those pursuing growth. For small businesses these percentages are unreliable, because a percentage of a small number produces a budget too small to do anything properly. A more useful approach is to work backward from what a customer is worth and how many you need.
Why the percentage rule breaks at small scale
Take a business doing three hundred thousand a year. Seven percent is twenty-one thousand, or roughly seventeen hundred a month.
That has to cover tools, any advertising, any outside help, and any content production. Split four ways it does nothing meaningfully in any direction, and the most likely outcome is a small amount spread thinly enough to produce no measurable result anywhere.
Meanwhile a business doing three million applies the same percentage and gets seventeen thousand a month, which funds a genuine programme.
The percentage does not scale down, because marketing has minimum effective doses. Below a certain spend in any channel you are not buying a smaller result, you are buying no result.
The framing that works better
Two numbers, then arithmetic.
What is a customer worth? Not the first sale. The total, including repeat business, over the time they typically stay. If a client pays four hundred a month and stays two years, they are worth around nine thousand six hundred, not four hundred.
How many more do you want this year? An actual number, not "more."
Now you can reason. If a customer is worth nine thousand six hundred and you want twelve more, that is roughly a hundred and fifteen thousand in additional lifetime revenue. Spending fifteen thousand to acquire it is obviously worth doing. Spending fifty is a judgement call about cash flow. Spending nothing guarantees the outcome.
This framing also tells you what you can afford to pay for a single customer, which is the number that actually governs decisions.
What it costs to acquire one
Work this out even roughly and most budget questions answer themselves.
Take last year: total marketing spend, including tools and any outside help, divided by new customers acquired. That is your blended acquisition cost.
Compare it against customer value. If a customer is worth nine thousand six hundred and costs eight hundred to acquire, you should be spending considerably more than you are. If they cost six thousand to acquire, something needs fixing before you add budget.
Most small businesses have never calculated this, which is why budget conversations tend to be about comfort rather than arithmetic.
Where small businesses overspend
| Common spend | The problem |
|---|---|
| Tool subscriptions | Accumulate quietly, overlap heavily, rarely audited |
| Paid ads with no conversion tracking | You cannot tell whether it works, so it never gets cut |
| Website redesigns | Expensive, and rarely the actual constraint |
| Content volume | More posts on a site that cannot convert them |
| A fourth channel | Started before the first three were working |
The first row is worth an hour of your time this week. Most businesses I look at are paying for two or three tools that overlap, and at least one nobody has opened in months.
Where they underspend
Follow-up. The cheapest revenue available, and it is a build cost rather than a recurring one. Almost always the highest return per pound spent.
Measurement. Configuring conversion tracking costs an hour and makes every future pound spendable on evidence rather than instinct.
Retention. Keeping a customer is dramatically cheaper than acquiring one, and it is the line item that almost never appears in a small business marketing budget at all.
One thing done properly. Concentrating the budget usually beats distributing it, and distributing it is the default because it feels safer.
A starting allocation
For a small business with limited budget and no marketing person, this is roughly where I would put it.
- 40 percent on capture and follow-up. Forms, sequences, CRM, review generation. Fix the leaks before adding volume.
- 30 percent on being findable. Whichever single channel your buyers actually use, done properly.
- 20 percent on content or proof. Pages that convert the traffic you get, and evidence you have done this before.
- 10 percent on measurement and tools. Less than people expect, and enough.
Note what is not there: paid advertising. For a business without proof, reviews, or conversion tracking, paid traffic arrives at a page that cannot convert it. Ads amplify, and amplifying something unproven just costs more per unit of nothing. Add it once the rest works.
The number that should worry you
Not a budget that is too small. A budget you cannot evaluate.
If you cannot say how many inquiries came in last month and roughly where they came from, the size of your budget is not the pressing question. Every pound is currently being spent on faith, and doubling faith is not a strategy.
One hour of configuration makes every subsequent budget decision better, which makes it the highest-leverage thing on this page.
What to do this week
- Work out what a customer is worth over their full relationship
- Divide last year's total spend by new customers to get acquisition cost
- Audit every subscription and cancel what is not being used
- Check whether conversion tracking is working
Most owners find the third step pays for something on their fix list, and the first two turn budgeting from a feeling into a calculation.
Then, and only then, is "how much should we spend" a question with a real answer.
Eric Howard
Founder of SteelAIQ and a chief marketing officer with more than twenty years running marketing organizations across enterprise software, manufacturing, and consumer brands. Based in Pittsburgh.
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