How much should a small business spend on marketing? Work it out from customers, not a percentage
Set your marketing budget from the customers you need and what each one costs to win, then check it against what you can afford. Work out how many new customers you need a month, how many enquiries that takes at your close rate, and what an enquiry costs in each channel. Percentages of revenue (often quoted at 5 to 10%) are a sanity check, not a plan. The SBA’s own guidance is simply to include a complete breakdown of the costs of your marketing plan and to compare marketing costs with the revenue they produce.
Key takeaways
Why not just use a percentage of revenue?
Because the same percentage buys very different results. Five percent of revenue is plenty for a dentist with a waiting list and far too little for a new renovation firm that needs ten jobs to survive. Percentages describe what other businesses spend; they do not tell you what your growth costs.
The U.S. Small Business Administration does not give a percentage either. Its guidance is to include a complete breakdown of the costs of your marketing plan, be as accurate as possible, and compare marketing and sales costs with the revenue they generate once the plan is running. That is the method below.
How do you calculate a marketing budget step by step?
- Decide how many new customers you need per month to hit your revenue goal (goal minus repeat business, divided by average sale).
- Find your close rate from your last 20 or 30 enquiries: how many became paying customers.
- Enquiries needed = customers ÷ close rate.
- Estimate cost per enquiry by channel: Google Ads benchmarks for your trade, referral or review costs, any directory fees.
- Paid budget = enquiries needed from paid channels × cost per enquiry.
- Add fixed costs: website, call tracking, review software, design, agency or freelancer fees.
- Check the cost per customer against your ceiling (profit per customer). If it is above, change the channel, the offer or the close rate, not just the budget.
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A worked example: a landscaping company
Assumptions, stated: the company wants $40,000 more revenue a month in season. Average job $2,000, so 20 new customers. It closes 40% of quotes, so it needs 50 enquiries. Referrals and repeat clients bring 20 enquiries a month at almost no cost; the other 30 must come from marketing.
If Google Ads enquiries cost about $90 (close to WordStream’s 2025 home improvement median of $90.92 per lead), 30 enquiries cost about $2,700 a month in ads. Add $300 for call tracking, review requests and website hosting, and $1,000 for management. Total about $4,000 a month, or $200 per new customer on a $2,000 job. With a 40% margin each job makes $800, so the budget pays back four times on first jobs alone.
For the sanity check: $4,000 against $40,000 of new revenue is 10%, at the high end of the usual range but justified by the payback. A percentage rule alone would have said “too much”.
What is a sensible split between channels?
| Line | Typical share for a local service business (our starting point) | Notes |
|---|---|---|
| Google Ads (search and local) | 40 to 60% | The fastest, most measurable source of enquiries |
| Google Business Profile, local SEO and website | 20 to 30% | Builds the organic and map leads that do not stop |
| Reviews and follow-up automation | 5 to 10% | Raises close rate and review volume |
| Social ads (Meta) or other channels | 0 to 15% | Add once search is working; good for visual trades |
| Test line | About 10% | One new idea at a time, with a pass and stop line |
These are our starting assumptions for a typical local service business, not benchmarks. Adjust them to where your customers actually come from.
When should you spend more, or less?
- More: when the cost per customer is well under your ceiling and you can handle more work. Add in steps of 20% and watch cost per customer.
- Less: when the cost per customer rises above the ceiling for two months. Fix tracking, search terms and follow-up before cutting.
- Pause a channel: when it has produced no customers after enough enquiries to judge (for most, 20 or more).
Try your own numbers in the free small business marketing budget calculator.
Frequently asked questions
What percentage of revenue should a small business spend on marketing?
Figures of 5 to 10% are widely quoted, but they are a check, not a plan. Work out what the customers you need cost to win, then compare with revenue.
How much should a new business spend on marketing?
Usually more than an established one, as a share of revenue, because nobody knows you yet and there are no referrals. Budget for the enquiries you need and accept a higher cost per customer in the first year.
Should I count my time as a marketing cost?
Yes, when comparing channels. SEO and social media done yourself are not free; they cost hours you could bill.