How Much Should a Small Business Spend on Marketing?
Percentage-of-revenue rules sound sensible, but they tell you nothing about what your marketing should achieve. A better way is to work backwards from what a new customer is actually worth to you.
The short version
- Work backwards from the profit a new customer brings in, not from a percentage of turnover.
- Keep management fees and ad spend separate, so you can see exactly where your money goes.
- Fund one channel properly rather than several badly.
- Judge results on cost per enquiry and cost per customer, reviewed monthly.
Why the percentage rules fall short
You will often hear that small businesses should spend somewhere between 5 and 10 percent of revenue on marketing. It is a reasonable sense check, but it ignores the things that actually decide your budget: how much a customer is worth, how competitive your market is and how quickly you need to grow. A new business trying to establish itself and a settled business with a full diary need very different budgets, even at the same turnover.
Work backwards from what a customer is worth
The question to answer is: how much can I afford to pay to win a new customer and still make good money? Here is a simple worked example for a local service business.
- Average job value: £1,500. Use the typical first job, not your best one.
- Gross profit per job: £600. What is left after materials and labour.
- Close rate: 1 in 4 enquiries. Check your own records. Most businesses overestimate this.
- Profit per enquiry: £150. £600 profit divided by four enquiries.
- Affordable cost per enquiry: around £50. Spending up to a third of that profit to win the work leaves a healthy margin.
- Target: 20 new enquiries a month. At £50 each, that is £1,000 a month in ad spend.
Now you have a budget with a purpose. If you get enquiries at £35, you can afford to spend more. If they cost £90, something needs fixing before you spend another pound. And if your customers come back year after year, the real value of each one is higher still, which gives you more room.
Keep fees and spend separate
There are two parts to any paid marketing budget: the media spend that goes to Google or Meta, and the fee for whoever manages it. Keep them separate. You should always be able to see exactly how much went to the platform, ideally paid from your own card into an account you own.
For reference, my fees are £750 a month for Google Ads or SEO, or £1,000 a month for both, on a monthly rolling basis. Ad spend is on top and goes straight to Google. For most local service businesses I recommend at least £1,000 a month in ad spend so there is enough data to work with.
Where to put your first £1,000
- Free first: set up and optimise your Google Business Profile and start collecting reviews.
- Tracking: make sure every form, call and booking is measured before money goes into ads.
- One paid channel, properly funded: for most service businesses that is Google Search ads on your two best services.
- Then SEO and social: build longer-term channels once you know which services and searches bring in profitable work.
Red flags in a marketing quote
- Long fixed-term contracts with heavy exit fees.
- Ad spend bundled into one monthly figure so you cannot see what reaches Google.
- Accounts set up in the provider's name rather than yours.
- Reports full of impressions and clicks, with nothing on enquiries or customers.
- Guaranteed rankings or guaranteed results. Nobody can honestly promise those.
Review it monthly
A budget is a starting point, not a commitment. Look at cost per enquiry and cost per customer every month, and move money towards whatever is working. That one habit does more for small business marketing than any tactic.
Frequently asked questions
Is £500 a month enough for Google Ads?
In some lower-competition industries it can be. In most competitive service markets it buys too few clicks to learn what works quickly. It is better to start with one service at a properly funded level than to spread a small budget thinly.
What is a good cost per lead for a small business?
There is no universal number. A good cost per lead is one that leaves you a healthy profit once your close rate is taken into account. Work it out from your own job values using the example above.
Should I pay a marketing provider a percentage of my ad spend?
It can work for large accounts, but for small businesses a flat monthly fee is usually fairer and more transparent. It also removes any incentive to recommend higher spend than you need.
Want help working out your numbers?
Book a 30 minute call and we will work through your job values and close rate together, so you leave with a budget that makes commercial sense.