How Much Should a Small Business Spend on Marketing? The Math Nobody Shows You
“How much should I spend on marketing?”
Naturally, he had already heard what most small business owners hear, and he was confused.
Because the truth is, no one really tells you how to calculate it.
Some marketing companies will tell you there’s a minimum you have to spend for it to work at all.
Others will tell you it’s a percentage, usually somewhere in that 5 to 10 percent of revenue range.
And some will just flip the question back on you:
“Well, how much can you afford to spend?”
Well, to be honest, none of those answers are necessarily right.
And just to bust the myth completely:
There is no universal answer or percentage as to how much a small business should spend on marketing and advertising.
Every small business has its own marketing budget “sweet spot”.
An amount it should spend to consistently attract enough customers while staying profitable and positioning itself for growth.
Why?
Because your business is not the same as every other business. In fact, it’s not even the same as another similar business in your industry.
I know businesses that spend 50% of their budget on marketing.
I know others that spend 25%.
And I know some who spend nothing at all… and well… those companies probably should be spending some money on marketing, but you get the idea.
So, back to the original question:
How much should a small business spend on marketing?
How do you know when you’re spending too little to see meaningful results? And at what point are you simply wasting your hard-earned money?
Here’s the thing that nobody talks about:
Two businesses can generate the exact same revenue and still need completely different marketing budgets.
So, instead of relying on generic percentages or arbitrary rules, let’s take a different approach.
In this article, I’ll walk you through a simple calculation to help you determine how much your business should spend on marketing and advertising, based on your own numbers, not someone else’s.
Table of contents
Stop Starting With Revenue. Start Starting With the Customer.
The Three Numbers That Actually Tell You How Much You Should Spend on Marketing
What You Say in Your Emails is Important
Marketing Shouldn't Feel Like Gambling
Okay, But What About the Percentage Rule?
What Now?
The question that actually matters isn’t “what percentage of my revenue should I spend, or how much can I afford to spend.”
It’s this:
“How many new customers do I need and what is each one actually worth to me?”
Now, I know…
As a small business owner, it’s natural to want as many customers as possible.
But the reality is that every business has expenses to cover, and profit goals to achieve.
Success isn’t just about getting as many customers as possible; it’s about getting enough of the right customers to keep your business sustainable, profitable, and growing.
But what’s even most important here is the second part of the above question:
“…what is each one actually worth to me?”
This is where almost everyone gets tripped up, because many small businesses only perform calculations based on the first sale.
But the first sale is rarely the whole story.
Picture a small ecommerce shop selling handmade candles.
A new customer’s first order averages $15.
Not exactly a number that justifies a big ad budget on its own, right?
But if that customer likes what she got and comes back two or three more times over the next year, spending another $15 to $20 each time, her real value to the business isn’t $15. It’s closer to, let’s say, $65.
That $65 is what should be driving the marketing decision, not the $15 snapshot of a single transaction.
If you sell things, online or in store, you should be able to see how much a customer spends in a year.
A quick side note:
If your customers aren’t becoming repeat customers, that’s a different marketing challenge altogether. Retaining existing customers is often one of the easiest and most cost-effective ways to increase revenue. But that’s a topic for another day. For now, let’s focus on the main question.
So, I gave you the example of an online candle store. Now, let’s switch gears and look at a completely different type of business.
A law firm, or a consulting practice where a new client might be worth several thousand dollars, sometimes tens of thousands.
Same exercise.
Wildly different number.
And that’s exactly the point:
The “right” marketing budget for the candle shop and the “right” budget for the law firm would never be the same, even if both businesses bring in identical annual revenue.
A flat percentage can’t account for those differences.
A “what can I afford to spend?” approach can’t account for them either.
And, sadly, any marketing firm that tells you that you have to spend at least “blah blah amount” to see results can’t account for them either.
Only you can, because only you know what a customer is actually worth to your business once you look past the first transaction.
Now, while you’ll need to calculate the answers to this question by looking at your own financials, knowing these numbers alone doesn’t give you a marketing budget.
They’re an important starting point, but there’s still more to consider.
So let’s keep going.
You need three numbers:
How many new customers do you need?
What is a customer really worth to you?
What can you afford to spend to acquire a new customer?
Now… for the magic.
Multiply the number of new customers you need by the number you can afford to spend, or need to spend, to acquire each one, and viola, you’ve just answered the question, “How much should I spend on marketing?”
Let’s look at a real-world example.
To illustrate this, let’s compare the two examples I made earlier:
The online candle shop and a law firm.
To keep the comparison fair, we’ll assume that both businesses have the exact same annual revenue goal of $500,000.
At first glance, you might think they should have similar marketing budgets because they’re trying to generate the same amount of revenue.
But once you look at the value of each customer and how many customers each business needs to reach that goal, you’ll see why that simply isn’t true.
Here’s how the numbers compare:
Now here’s the fun part.
A good marketing company doesn’t just take your budget and spend it all; it works relentlessly to make every marketing dollar more effective.
Sure, that takes time.
It takes testing, measuring, refining, and optimizing.
Some campaigns will perform better than others, and every insight helps improve the next one.
But the idea is that, over time, the cost of acquiring a new customer should gradually decrease.
And then…
At the same time, find ways to increase the value of each customer.
That could mean staying in touch with your customers to encourage repeat purchases; it could mean offering a discount for customers who purchase more, or establishing a customer loyalty or referral program.
That’s when the real magic happens!
If you can reduce the cost of acquiring a new customer while increasing the lifetime value of each customer, every dollar you invest goes further, your return on investment grows, and your business can scale much faster.
So, the answer to “how much should I spend?” is in fact a simple calculation. And once you get it right, it’s about making every dollar work harder.
When you understand your numbers and continuously improve them, growth stops being a matter of luck and starts becoming a predictable, repeatable process.
A marketing budget shouldn’t feel like a nerve-wracking bet you’re crossing your fingers over.
It shouldn’t stress you out every time you approve the spend.
When it’s done right, marketing stops being a gamble and becomes much closer to a system.
You’re not hoping it works.
You’re spending because the math already told you it should, and you’re watching the numbers to confirm you were right.
That shift, from “I hope this pays off” to “I already know roughly what this should return,” is the difference between marketing that keeps you up at night and marketing that just quietly does its job.
Eventually, you may discover that your marketing budget consistently works out to a certain percentage of your revenue.
Once you know that, it becomes a useful planning tool.
But that percentage isn’t where you should start.
In the early years, while you’re building your brand and gaining traction, your marketing spend may need to be higher to get your business off the ground.
Later, as your business becomes more established, you may decide to increase your marketing budget to accelerate growth, or you may be happy with where you are and choose to maintain your current pace.
Like any budget, your marketing budget isn’t fixed.
It’s a living, breathing number that changes as your business changes.
Maybe you launch a new product or service.
Maybe you introduce a subscription model.
Maybe your customer retention improves, your average order value increases, or your profit margins change.
Any one of those factors can affect how much you should spend on marketing.
So yes, over time, you may find that your business typically spends a certain percentage of its revenue on marketing.
But that percentage is the result of understanding your numbers, not the starting point. And it’s almost certainly not the right percentage for another business.
Start by figuring out what a customer is worth.
Then determine what you can afford to spend to acquire one while remaining profitable. Let those numbers guide your marketing budget, and use the percentage simply as a guide marker or planning tool, not as the formula.
So, the next time you catch yourself asking how much your small business marketing budget should be, skip the search for a magic percentage.
Ask instead:
What is a new customer actually worth to me?
What can I spend to get one and still come out ahead?
And if you answer those two questions correctly, your marketing budget stops being a guess.
It becomes a number you can explain, defend, and, most importantly, a real number you can actually trust.
Well, of course, figuring out how much you should spend on marketing or advertising is only the beginning.
Knowing your budget gives you a destination, but there’s still the journey of getting there.
There are marketing campaigns to create, strategies to develop, results to measure, and countless adjustments along the way.
If you’ve made it this far, I’m hoping I’ve earned a little of your trust.
My goal with this article wasn’t to sell you anything.
It was simply to help make marketing a little less confusing and give you a practical way to think about your marketing budget.
At Key Marketing Strategies, we work with small businesses every day to help them get the most out of their marketing dollars.
Whether it’s creating a strategy, improving what’s already working, or helping you avoid wasting money on things that don’t, our focus is always the same:
Helping your business grow in a way that makes sense.
And, hey, if we never speak, I sincerely hope this article gave you something useful to take back to your business.
Running a small business isn’t easy.
Trust me, I know because I have one too.
There are long days, tough decisions, and plenty of uncertainty along the way.
But there are also great days and amazing rewards.
I truly believe small businesses are the backbone of our communities.
They create jobs, solve problems, support local families, and drive innovation.
So wherever you are on your journey, I wish you nothing but success. Keep learning, keep improving, and keep building something you’re proud of.
Free Homepage Design
Get a stunning, custom homepage for free!
Limited-time offer—claim yours now!
