The question that comes up in every first meeting with a small company: how much should I spend on marketing?
The textbook answer — "five to ten percent of revenue" — is not useful to an owner who is still building. It assumes you already have stable revenue and that every pound works with equal efficiency, and neither is true.
There is a more accurate and simpler method, and it starts from the end: from the customer you want.
Start from the goal, not from the money
Before you ask how much to spend, ask: how many new customers do I want next month?
If the answer is twenty, and you know that out of every hundred people who talk to you ten buy, then you need two hundred conversations. And if one in every five hundred people who see your ad contacts you, you need to reach a hundred thousand.
Those numbers turn "how much should I spend?" into a question that has an answer: what does it cost to reach that number?
The three numbers you must know
You do not need a complex system. Three numbers, and you can get them from your own records in an hour:
- Average customer value. What does a customer pay you on average the first time, and what over a year? The second number is the important one.
- Profit margin. Out of every hundred pounds coming in, how much remains after direct cost? That is what you spend from.
- Conversion rate. Out of every ten people who enquire, how many buy? This is the most important number and the one most people do not know.
If a customer pays you ten thousand a year on average and your margin is forty percent, that customer brings you four thousand in profit. The cost of acquiring them has to be part of that four thousand, not more than it.
A simple rule: keep acquisition under a third
A practical rule I use with small companies: the cost of acquiring a customer should not exceed a third of the profit they bring in the first year.
That leaves the other two thirds to cover fixed costs and produce real profit. If acquisition approaches half the profit, you are buying growth with your own money and standing still.
This gives you a clear ceiling: if a third of the profit is a thousand pounds, you are willing to pay up to a thousand to win a customer. Any channel bringing customers below that, increase. Any channel bringing them above it, stop or fix.
A starting budget is different
If you are just beginning and have no numbers, no percentage applies, because every calculation needs data you do not have yet.
In that case, the budget is a cost of learning. Decide an amount you are willing to lose entirely without affecting the business, split it across three months, and treat it as the price of information rather than the price of sales.
The goal in those months is not profit — it is to learn your conversion rates and the cost of a single message. Once the numbers appear, the real calculation begins.
Split the budget into three buckets
The biggest mistake is putting the whole budget into direct advertising. The split that works:
- Seventy percent on what brings customers now. The channels you are confident deliver enquiries and sales.
- Twenty percent on what builds. Content, the website, reputation — things whose results come in months but which lower your cost afterwards.
- Ten percent on experiments. A new channel or a new message. This is what stops you waking up one day to find the only channel that worked for you has changed.
Costs people forget to include
People count the ad spend and nothing else, then wonder why the total is higher than expected.
A real budget also includes: content production (shooting, design, writing), tools (hosting, software, scheduling), the time of the people doing the work, commissions, and printed or on-site material.
If those are not written down, you will find yourself pausing an ad to pay an invoice you forgot about.
Budget monthly, not annually
An annual plan is fine for direction, but execution has to be reviewed monthly. Markets shift, seasons differ, and channels get expensive suddenly.
Keep a simple monthly review: how much you spent, how many enquiries you received, how many converted, and at what value. Four numbers written in half an hour, and they are what stops you spending six months on something that is not working.
When do you increase and when do you stop?
- Increase when a channel brings customers below your ceiling and your capacity to serve allows it. Do not increase if you cannot deliver.
- Hold when the cost is close to the ceiling. Try improving the message or the targeting before spending more.
- Stop if two months pass with cost above profit and no improvement after two or three adjustments.
And that decision has to rest on written numbers, not a feeling that the month was "bad."
The most common mistake: a budget that changes every month
Many companies spend heavily in a good month and stop entirely in a weak one. That is precisely the opposite of what should happen.
The weak month is the result of stopping marketing two months ago. Most channels need continuity to give you data and improve, and stop-start returns you to zero every time and makes you pay the cost of learning again.
Better to set a smaller number you can commit to every month than a large one you keep switching off.
The budget differs by what you sell
There is no single number that fits everyone, and the differences are large:
- If you sell direct to consumers, the decision is fast and the cycle short, so the budget goes into advertising and continuous content.
- If you sell to companies, the cycle is long and the numbers small, so money goes into professional presence, relationships and events rather than broad advertising.
- If you sell a local service, the most important thing is visibility in your area: Google Maps, reviews, and referrals.
The common error is taking advice meant for one type of business and applying it to another, then being surprised the money disappeared.
Cap your experiments
Every new channel needs a learning period, and that period has a cost. Decide before you start: what is the most I will spend, what will I measure, and when will I decide.
Without that cap, the experiment becomes an open-ended commitment, and six months later you are still spending on something you started "just to try."
In short
A marketing budget is not an arbitrary percentage or whatever is left at month end. It is a calculation that starts from the number of customers you need, the value of a customer to you, and the cost of reaching them.
Know three numbers: customer value, your margin, and your conversion rate. Set a ceiling for acquisition cost, split the budget between what brings customers now, what builds, and what you are testing, and review monthly.
Do that and you will stop asking "how much should I spend?" and start asking the right question: what does this channel cost me per customer?
This is part of a series on marketing budgets and return — which also covers planning costs before you start, and holding people to results.