Summary
How much should a business spend on marketing? This practical guide explores common budgeting benchmarks and explains how factors such as business size, growth goals, industry and market competition can influence your ideal marketing investment.
How Much Should a Business Spend on Marketing? A Practical Budget Guide
“How much should I actually be spending on marketing?” It’s one of the most common questions small business owners ask. Instead of treating marketing as another line item to keep as low as possible, connect the investment to what you want it to accomplish. How many customers do you need? How much growth are you pursuing? And what will it realistically take to get there?
This guide walks you through everything you need to consider when creating a marketing budget.
So, How Much Should a Business Spend on Marketing?
Using a percentage of annual revenue is a reasonable place to begin. An established business that wants to maintain its current position can often work with a smaller marketing investment. A company pursuing steady growth will need to spend more. A startup or a business trying to gain market share quickly may need to make a much larger investment, particularly during the first few years.
If you’re entering a market where several competitors have strong Google rankings, you’re starting from behind recognized brands. Building enough visibility to compete will take time and money.
What Counts as Part of Your Marketing Budget?
When business owners talk about their marketing budget, they often mean what they spend on ads. However, your total marketing investment can include Google Ads and other digital advertising, SEO, website development and maintenance, content and copywriting, social media, email marketing, branding, graphic design, photography, video, marketing software and agency or freelancer fees.
Include all these costs when looking at what you spend on marketing. Otherwise, you may be working with a much larger marketing budget than you realize.
The Factors That Should Determine Your Marketing Budget
Before settling on a number, consider a few factors that affect how much you can spend and how much you may need to spend.
Revenue: Your marketing budget needs to be sustainable based on your revenue, margins and profitability.
Growth goals: Maintaining your current revenue requires a different investment than growing 20 or 30 percent.
Industry: The cost of reaching and acquiring customers varies widely, especially in highly competitive markets.
Market: A local business reaching customers within 20 miles has different marketing needs than a company selling nationwide.
Your business stage: New businesses must build visibility from scratch, while established companies may already benefit from rankings, reviews and repeat customers.
Average customer value: The more a customer is worth to your business, the more you can afford to spend to acquire one.
Marketing Budget Examples
First, consider a $100,000-a-year residential cleaning company serving one community. It might focus on its Google Business Profile, customer reviews, local SEO/AEO, and a small Google Ads campaign rather than trying to market everywhere.
Now, think about a $1 million plumbing company looking to add another truck. It needs a steady flow of new calls, so its budget might combine local SEO/AEO, Google Ads, Local Services Ads and website improvements to turn visitors into customers.
Then there’s the $5 million regional commercial construction company expanding into new markets. It may invest across several channels, including SEO/AEO, paid search, content, email, radio and targeted campaigns.
These are generic examples. Base actual budgets on your margins, goals, and customer economics.
Where Should You Spend Your Marketing Budget?
Focus on the channels most likely to reach your customers. That could include SEO/AEO and content, Google Ads, social media, email marketing or a combination. But don’t overlook your website. Driving more traffic won’t help much if visitors have trouble finding what they need or taking the next step.
You don’t need to divide your budget evenly across every channel. Focus your investment where your customers are and where you have the best chance of generating results.
$2,500 vs. $5,000 vs. $10,000 a Month: What Can You Realistically Expect?
At around $2,500 per month, it makes more sense to identify one or two priorities and execute them well than to spread your budget across a dozen different marketing strategies.
Around $5,000 per month gives you more room to combine strategies that support each other. That could mean pairing SEO/AEO and content with Google Ads, then using performance data to improve both the campaigns and the website.
At $10,000 or more per month, you can take a more comprehensive approach. You can run campaigns across multiple channels, produce content consistently, expand advertising reach and conduct more testing to find opportunities for improvement.
Your monthly marketing budget isn’t necessarily your monthly ad budget. If you have $5,000 available, some of that money may pay for Google or Meta ads, while some covers strategy, campaign management, copywriting, design, website work or other production costs.
The Biggest Marketing Budget Mistakes Businesses Make
A surprising amount of marketing money gets wasted before a campaign ever has the chance to succeed. Sometimes the business hasn’t defined what it wants the campaign to accomplish. Other times, the budget gets split across so many channels that none gets enough attention or money to gain traction.
Another common problem happens after the click. A company may spend thousands of dollars driving people to its website without addressing a confusing contact form, weak messaging or a poor mobile experience.
Tracking is also often forgotten. If you can’t tell which calls, forms and sales came from which marketing efforts, you’ll have a hard time knowing what deserves more budget. And if you change direction every few weeks, you may never give a promising strategy enough time to produce useful data.
How Do You Know If You’re Spending Enough?
Look at whether your current marketing is producing enough opportunities to support your sales goals. Are you generating enough qualified leads? What does it cost to acquire a customer? Are those customers profitable? If you doubled the budget for your best-performing campaign, is there enough demand to support the additional spend?
Also, if competitors consistently appear above you in search results, dominate paid advertising, or have much stronger visibility where your customers look, your current investment may not match the market you’re trying to compete in.
Marketing ROI Matters More Than the Percentage You Spend
Pay attention to cost per lead, customer acquisition cost, conversion rate, customer lifetime value, return on ad spend and overall marketing ROI. Those numbers tell you much more than a generic recommendation that your business should spend a certain percentage of revenue.
Over time, your performance data should matter more than an industry benchmark. If you know that investing another $1,000 in a particular campaign reliably produces profitable customers, you have a much stronger reason to increase the budget.
How to Build Your Business Marketing Budget
Start with your annual revenue, profitability and growth goal. Then work backward. How much additional revenue are you trying to generate? How many new customers would that require? What is an average customer worth?
Next, look at what you’ve already tried. Which marketing efforts have generated leads and customers? Which have consumed money without producing much in return? Where are prospective customers most likely to look for a business like yours?
Use those answers to establish an initial budget and decide where to allocate it. Then track leads, sales and acquisition costs to see what is producing business.
When Should You Increase Your Marketing Budget?
One of the best times to increase marketing spend is when you already know something is working. If a campaign consistently produces profitable customers and more demand is available, additional budget can help you capture it.
You may also need to invest more when entering a new geographic market, launching a product or service, expanding your sales capacity or responding to increased competition. More budget should have a job to do. Know what you expect the additional investment to accomplish and make sure you can measure whether it does.
Start With Your Business Goals, Not an Arbitrary Percentage
No universal “right” marketing budget exists for a small business. Revenue percentages can help you establish a starting point, but your margins, goals, customer value, competition and previous results will tell you far more about what you should spend.
How much should you be investing, or where should you spend it? McAllister Marketing can review your current marketing and help identify where your budget can have the greatest impact. Book a no-obligation meeting today to get started.
FAQs
How much should a business spend on marketing?
Many businesses allocate between 5% and 10% of their annual revenue to marketing. However, newer businesses or those pursuing aggressive growth may need to invest more.
Should marketing budgets be based on revenue?
Revenue provides a useful starting point, but your budget should also reflect your growth goals, industry, competition and current brand awareness.
Do new businesses need a larger marketing budget?
New businesses often need to spend a higher percentage of revenue on marketing to build brand recognition, attract customers and establish themselves in the market.
What should be included in a marketing budget?
A marketing budget may include strategy, branding, website development, content creation, SEO, digital advertising, social media, email marketing, software and analytics.
How often should a marketing budget be reviewed?
Businesses should review their marketing budget at least quarterly and adjust it based on campaign performance, changing priorities, market conditions and growth opportunities.
