How Much Should a Small Business Spend on Marketing?

There is no single right number for a marketing budget, but there are sensible ranges and a clear way to work out your own. This guide covers the common benchmarks, three practical budgeting methods and how to split the money once you have it.

A marketing budget starts with simple arithmetic and a clear goal.

Key takeaways

• A widely quoted starting point is 7% to 8% of gross revenue, based on long-standing U.S. Small Business Administration guidance for smaller firms with healthy margins.
• Revenue percentages are a sanity check, not a plan. Build your budget from your growth goal and your cost to win a customer.
• Split spending between proven channels and a small test budget, and review results every month.
• Count your own time and tools as marketing costs. "Free" channels are rarely free.

Ask ten small business owners how much they spend on marketing and you will hear ten different answers, from "nothing, it is all word of mouth" to "more than I want to admit." The real question is not what others spend. It is how much you need to spend to hit your goals, and whether you can afford it.

This guide gives you the benchmarks people quote, explains their limits, and walks you through three methods for setting a budget that fits your business.

The benchmarks: what the common guidance says

The SBA's percentage of revenue rule

The figure you will see most often comes from the U.S. Small Business Administration, which has long suggested that businesses with under $5 million in annual revenue spend around 7% to 8% of gross revenue on marketing and advertising, assuming net profit margins of roughly 10% to 12% after all expenses. It is a rule of thumb rather than a regulation, and the SBA's wording on its website has changed over the years, but it remains a useful reference point.

7% to 8% Share of gross revenue often suggested for marketing by smaller businesses with net margins of around 10% to 12% Based on U.S. Small Business Administration guidance

What larger companies spend

Gartner's annual CMO Spend Survey, which covers mostly large companies in North America and Europe, reported that average marketing budgets fell to 7.7% of company revenue in 2024, down from 9.1% in 2023. These figures describe big firms with established brands, so treat them as context rather than a target. A new small business often needs to spend a higher share of revenue to become known, while a long-established local business with strong referrals may need much less.

Why benchmarks only go so far

Percentage rules ignore several things that matter a lot:

• Your stage. A business in its first two years usually has low revenue and high need for awareness. A fixed percentage of a small number may be too little to make any difference.
• Your margins. A software business with high gross margins can afford to spend more per customer than a grocery store with thin margins.
• Your industry. Retail, consumer products and many online businesses tend to spend more on marketing than trades or professional services that rely on referrals.
• Your growth target. A business aiming to double in a year needs a very different budget from one aiming to hold steady.

Common mistake

Setting the budget as "whatever is left over" at the end of the month. Leftover budgets swing wildly, which makes it impossible to run a consistent campaign or learn what works. Even a small fixed monthly amount beats a large unpredictable one.

Three ways to set your marketing budget

Method 1: percentage of revenue

Multiply your expected annual revenue by a percentage you choose, often between 5% and 10% depending on growth goals and margins. It is simple and keeps spending tied to what the business can afford.

Best for: established businesses with steady revenue that want a quick, defensible number.

Method 2: goal-based (bottom-up)

Start with the number of new customers you need, then work backward using what it costs you to acquire one. This is the method most growth-focused businesses should use, because it ties spending directly to an outcome.

The formula is simple: marketing budget = new customers needed × cost to acquire a customer. If you do not yet know your customer acquisition cost, our guide to unit economics explains how to estimate it, and our guide to customer lifetime value shows how much you can afford to pay for each customer.

Method 3: competitive or market-based

Estimate what competitors spend, usually from their visible advertising activity, and decide whether to match, exceed or deliberately undercut them while focusing on different channels. This is hard to do accurately for small businesses, so use it as a cross-check rather than your main method.

Method	Strength	Weakness	Use it when
Percentage of revenue	Simple and affordable	Ignores goals and stage	Revenue is steady and growth targets are modest
Goal-based	Ties spending to outcomes	Needs reliable cost data	You have clear growth targets
Competitive	Shows market context	Competitor spend is hard to know	You are entering a crowded market

Hypothetical example

Suppose a home renovation company expects $800,000 in revenue next year. The percentage method at 7% suggests $56,000. The owner wants 40 new projects. From past campaigns, each new project costs about $1,100 in marketing to win, so the goal-based method suggests $44,000. Since the average project earns a healthy gross profit, either number is affordable. The owner sets $48,000, which covers the goal-based number plus about $4,000 for testing a new channel.

What counts as marketing spend

Many small businesses underestimate their real marketing costs because they only count ad spend. A complete budget includes:

• Paid media: search ads, social ads, sponsorships, print, radio and directory listings.
• Tools and software: email platform, scheduling tools, design apps, analytics, CRM and website hosting.
• Content and creative: photography, video, copywriting and design, whether freelance or in-house.
• People: agency retainers, freelancers and the share of staff time spent on marketing.
• Events and materials: trade shows, signage, brochures, samples and promotional items.
• Your own time: not a cash cost, but if you spend ten hours a week on social media, that time has a real value.

Pro tip

Create a separate marketing category in your accounting software and tag every related expense. After three months you will know your true spend, which is usually higher than owners expect once software subscriptions are counted.

Tracking real spend by channel shows where each marketing dollar goes.

How to split the budget

Once you have a total, divide it so that most of the money goes to what works while a small portion pays for learning. A practical starting split many marketers use looks like this:

• About 70% to proven channels: the activities that have already brought in customers at an acceptable cost.
• About 20% to promising channels: activities showing early results that you want to scale carefully.
• About 10% to experiments: new channels, new offers or new audiences you have not tried before.

If you are just starting and have no proven channels yet, flip the logic: spend most of the budget testing two or three channels in small amounts, then move money toward whatever performs best. Our guide to choosing social media platforms on a small budget and our list of low-budget ways to get local customers can help you pick where to start.

Brand versus performance

Performance marketing aims for an immediate, measurable action, such as a click, a call or a sale. Brand marketing builds awareness and memory so people think of you later. Small businesses usually lean heavily toward performance because cash is tight and results are easier to see. That is sensible, but putting nothing into awareness can make performance channels more expensive over time, because fewer people recognize your name when they see your ad.

How to set your budget step by step

1. Set a goal. Decide how many new customers or how much new revenue you want in the next 12 months.
2. Estimate acquisition cost. Use past data, or if you have none, start with a conservative guess and plan to update it after 60 days.
3. Calculate the goal-based budget. Multiply customers needed by acquisition cost.
4. Sanity-check it against revenue. Compare the number with 5% to 10% of expected revenue and with your cash flow. If it is far higher, lower the goal or find cheaper channels.
5. Split it. Apply the 70/20/10 approach, or a testing-heavy split if you are new.
6. Spread it across the year. Weight months toward your busy seasons, but keep a baseline running so you do not disappear.
7. Review monthly. Compare spend and results by channel, then move money from weak channels to strong ones.

Signs you can spend more

• A channel brings customers at a cost well below what they are worth
• You have capacity to serve more customers
• Cash reserves cover several months of expenses

Signs you should hold back

• You cannot tell which channels produce customers
• You are already turning work away or have long waitlists
• Customers churn quickly, so new ones barely replace them

Local differences

Costs vary widely by country and city. Advertising prices on search and social platforms depend on competition in your location and industry, and they change frequently, so a budget that buys plenty of clicks in one market may buy very few in another. Tax treatment of marketing spend also varies. In many countries, ordinary advertising costs are deductible business expenses, but rules differ, so check with an accountant before assuming.

Your budget action plan

• Add up last year's total marketing spend, including tools and freelancers
• Write your customer or revenue goal for the next 12 months
• Estimate your cost to acquire one customer
• Calculate a goal-based budget and compare it with 5% to 10% of revenue
• Split the total into proven, promising and experimental channels
• Create a marketing category in your accounting software
• Book a 30-minute monthly review of spend and results

Frequently asked questions

How much should a new business spend on marketing?

New businesses often spend a higher share of revenue than established ones because they need to build awareness from zero. Rather than a percentage, set a fixed monthly amount you can sustain for at least three to six months, so you have time to learn what works.

Is the 7% to 8% rule still relevant?

It is still a reasonable sanity check for small businesses with healthy margins, but it should not replace a goal-based budget. Businesses chasing fast growth often spend more, while those that rely on referrals may spend less.

Should I hire an agency or do marketing myself?

Doing it yourself saves cash but costs time and may slow results. An agency or freelancer makes sense when you have a proven channel to scale and your time is better spent elsewhere. Count agency fees as part of your marketing budget, not on top of it.

Should I cut marketing during a slow period?

Cutting everything can make recovery slower because your pipeline dries up. A better approach is to trim the weakest channels and protect the ones that reliably bring in customers, while keeping an eye on cash flow.

The bottom line

Use the 7% to 8% guideline as a sanity check, not a plan. Build your marketing budget from the number of customers you need and what each one costs to win, make sure it fits your cash flow, then split it between what works and what you want to learn. Review it monthly, and let results, not habit, decide where the next dollar goes.