How Much Should a Small Business Spend on Marketing?

There is no universal marketing percentage that is right for every small business. The right budget depends on the economics of the offer, the cost of reaching the customer, available cash, the maturity of the channel and how much demand the business can fulfil well.

Start with the result

Define the number of new customers or sales required, the time period and the maximum affordable acquisition cost. A simple planning equation is:

Marketing budget = target new customers × target customer acquisition cost

This is a starting point, not a promise. If the channel is untested, stage the investment and learn before committing the full amount.

Calculate the real acquisition cost

Include advertising, creative, contractors, agency fees, software, discounts and the sales effort required to convert demand. Shopify’s guidance on customer acquisition cost uses total acquisition-related spend divided by new customers. Use your own complete data and the worked process in how to calculate CAC properly.

Check the unit economics

Compare CAC with contribution from the first purchase and expected customer value. Ask:

• How much gross or contribution margin does the first sale create?
• How long until the acquisition cost is recovered?
• How reliable is repeat purchase behaviour?
• What refunds, fulfilment and service costs are missing?

Do not use optimistic lifetime value to excuse an acquisition cost when repeat behaviour is not yet proven. Calculate customer lifetime value by cohort and keep checking actual results.

Check cash and capacity

A campaign can look profitable on paper and still create pressure if suppliers, wages and media must be paid before customer cash arrives. It can also damage the brand if the team cannot answer enquiries or deliver orders well.

Review cash flow vs profit and confirm inventory, delivery, customer service and sales capacity before scaling.

Split the budget by purpose

Separate:

• Always-on activity: proven channels, email, search presence and core content.
• Campaign activity: launches, seasonal pushes and specific offers.
• Experiments: controlled tests with a question, limit and decision date.
• Capability: tools, people, data and creative systems that improve future performance.

Use stop, continue and scale rules

Before launch, define the minimum data needed and the thresholds for action. Some channels need time to mature, but “brand building” should not become a permanent exemption from disciplined review.

The Australian Government’s marketing plan guidance recommends setting goals, activities, timing and budget, then evaluating and updating the plan. Connect that plan to the complete sales and marketing strategy so spending supports the whole customer journey.

If the budget debate is really a strategy, cash or capacity problem, The Pocket CEO can help you make the commercial decision before you commit the spend.

General information only. Every business is different; use your own figures and seek professional advice where appropriate.