The short answer
There’s no single right percentage. Work it out from the other direction: how many new customers you need, what a customer is worth to you, and what you can afford to pay to win one. Add the fixed costs — fees, tools and production — and keep a test budget you can afford to lose while you find out what works.
In this guide
Most advice on marketing budgets starts with a percentage of revenue. It’s a reasonable sense-check, but it can’t tell you whether a budget is enough to achieve anything specific. For that, work backwards from the result you need.
Why percentage rules only go so far
You’ll see many figures quoted for what businesses spend on marketing as a share of revenue. They come from surveys of particular industries, company sizes and years, and they vary widely. A 2019 post on the US Small Business Administration’s blog (opens in a new tab) put it plainly: there’s no hard and fast answer, and it suggested checking with your industry trade association for benchmarks.
Percentages also hide the most important variables: your margins, how much a customer is worth over time, how competitive your market is, and whether you’re trying to grow or hold steady. Two businesses with the same revenue can need very different budgets.
Work backwards from the customers you need
Start with three numbers:
- How many new customers you need in a month or a year.
- What a customer is worth to you — ideally the gross profit (sales minus the direct cost of delivering them) over the time they stay with you. This is often called customer lifetime value.
- What you can afford to pay to win one — your acceptable cost per customer, a share of that value that still leaves the profit you need.
Multiply the first by the third, and you have a budget for winning customers.
Illustrative example. The figures are invented to show the arithmetic, in New Zealand dollars; the method works in any currency.
A bookkeeping practice wants five new clients a month. A typical client brings NZ$3,000 of gross profit over two years. The owners decide they can pay up to NZ$600 to win one. So the budget for winning clients is up to 5 × NZ$600 = NZ$3,000 a month, covering ad spend, fees and production together.
If you don’t know your numbers yet, use cautious estimates and plan to replace them with real figures within a few months.
What the budget should include
| Cost | Examples | Fixed or variable |
|---|---|---|
| Advertising (media) | Google Ads clicks, Meta or LinkedIn ads | Variable — you can turn it up or down |
| Fees | Agency, freelancer or consultant | Usually fixed each month |
| Production | Photography, video, copywriting, design | One-off or recurring |
| Tools | Email platform, CRM, analytics, call tracking | Fixed monthly |
| Website | Hosting, maintenance, improvements | Fixed, plus one-off projects |
| Your time | Hours spent briefing, approving, creating | Hidden, but real |
A CRM — customer relationship management system — is software that keeps track of enquiries and customers, and ideally where each one came from.
Watch the balance between fees and advertising. If most of the budget goes on management and very little reaches the platforms, you may be paying someone to look after too little activity to learn from. The right balance depends on the channel: SEO and content are mostly fees and production; paid advertising needs enough media spend to generate meaningful data.
Set a test budget and a review date
For a channel you haven’t tried, don’t commit a full year. Set a test:
- A budget you can afford to lose, large enough to produce a meaningful number of enquiries.
- A success measure agreed in advance, such as cost per enquiry or cost per customer.
- A fixed period. Paid advertising platforms need time to learn, so allow several weeks at least; SEO needs months.
- A review date where you decide to stop, adjust or scale.
For Google Ads specifically, how much Google Ads costs shows how to estimate a starting budget from cost per click.
When to spend less, not more
More budget amplifies what’s already there, including the problems. Hold back if:
- You can’t tell which enquiries came from marketing
- Your website gets visitors but few enquiries
- Enquiries aren’t being answered quickly
- You couldn’t handle much more work if it arrived
What to fix before you spend more covers each of these.
Tax on marketing costs
Depending on where you are, marketing fees may carry VAT (UK and Ireland), GST (Australia and New Zealand), GST or HST and provincial taxes (Canada), or state sales tax in some US states. Whether you can reclaim it depends on your tax registration. Check quotes are compared on the same basis.
What to do next
- Estimate how many new customers you need each month.
- Work out what a customer is worth in gross profit, and decide what you can pay to win one.
- List fixed costs (fees, tools, production) separately from advertising spend.
- Set a test budget, a success measure and a review date before you start.
Apply this to your business
Work out your marketing budget
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