How much should a small business spend on marketing?

Ask ten business owners how they set their marketing budget and you’ll hear ten answers — most of them some version of “whatever’s left over”. It’s understandable. Marketing is the easiest cost to cut when cash is tight and the hardest to judge when things are going well. But a budget built on leftovers tends to produce leftover results.

A marketing budget that pays for itself isn’t about finding the magic percentage. It’s about knowing what a customer is worth, what it costs to win one, and how many you need.

Why isn’t there a standard marketing percentage?

You’ll often see rules of thumb that suggest spending a fixed share of revenue on marketing. They can be a handy sanity check, but they ignore the things that actually determine what you should spend:

• Margin. A business with a 70% gross margin can afford to pay far more to win a customer than one with a 20% margin.
• Customer value. A client who stays for years is worth more than a one-off buyer.
• Growth stage. A new business building awareness needs to spend more relative to revenue than an established one living on referrals.
• Capacity. There’s no point marketing for work you can’t deliver.
• Competition. Crowded markets with expensive online advertising need a different approach from niches where word of mouth still dominates.

That’s why two businesses with identical revenue can sensibly have very different budgets.

What are the three ways to set a marketing budget?

Method	How it works	Strengths	Weaknesses
Percentage of revenue	Pick a share of current or target revenue	Simple, scales with the business	Ignores margin and goals; spends less when you most need to grow
Goal-based (objective and task)	Decide the result, cost the activities to get there	Tied directly to growth targets	Needs reasonable estimates of costs per customer
Customer-value based	Set the maximum you’ll pay per customer from their gross profit	Guarantees marketing pays back if you stick to it	Needs tracking and customer data

Most businesses do best combining the last two: a goal-based budget checked against a customer-value ceiling.

How do you build a goal-based budget?

Work backwards from what you want:

1. Set the goal. For example, 20 extra customers a month.
2. Know your conversion. If one in four enquiries becomes a customer, you need 80 enquiries.
3. Know your cost per enquiry. If search ads bring enquiries at $45 each, 80 enquiries cost $3,600.
4. Add fixed costs. Design, a landing page, a tracking tool, a few hours of agency time.
5. Check against customer value. $3,600 ÷ 20 customers = $180 per customer. Is that comfortably below the gross profit each one brings?

If you don’t know your cost per enquiry yet, that’s what a test budget is for. business.gov.au’s marketing plan guidance suggests setting SMART goals and allocating a budget to each activity — a useful discipline even for small spends.

What’s your customer-value ceiling?

This is the most important number in marketing, and many owners have never worked it out. It’s the most you can afford to pay to win one customer and still come out ahead:

Ceiling = gross profit per customer over their lifetime − a margin for overheads and profit

If a customer is worth $900 in gross profit over the relationship and you want at least half left over, your ceiling is $450 per customer. Any channel that wins customers below that is worth scaling; any above it needs fixing or dropping. Our guide to customer acquisition cost and lifetime value explains how to calculate both, and the gross margin guide shows why you must use profit, not revenue.

A worked example (illustrative)

A family-owned landscaping and garden-maintenance business wants to grow from 60 regular maintenance clients to 100 over the next six months.

• Customer value. A maintenance client pays about $220 a fortnight. At a 40% gross margin, that’s about $88 of gross profit per visit, or roughly $2,290 a year. Clients typically stay around three years — a lifetime gross profit of about $6,800.
• Ceiling. The owners decide they’ll pay up to $800 to win a maintenance client, well under the lifetime value, to leave plenty for overheads and profit.
• Goal. 40 new clients over six months — about seven a month.
• Test results. A two-month test of local search ads and letterbox drops in target suburbs produced enquiries at about $60 each, with one in three converting. That’s $180 per client — far below the ceiling.
• Budget. Seven clients a month × $180 = about $1,260 a month in media, plus $300 a month for design and tracking. Allowing for costs per client rising as spend grows, they budget $2,000 a month.

At that spend, even if acquisition cost doubled to $360, each client would still be worth many times what they cost. The bigger constraint turns out to be capacity: 40 more clients means another crew. So the marketing budget and a hiring plan become one growth move — see finance to hire staff.

If the numbers in your business look similar and you’d like funding to scale faster, you can check your options in about a minute.

Which channels should a small business start with?

The best early channels are the ones you can measure:

• Search ads — people are already looking; costs and conversions are trackable.
• Local search listings and reviews — often free, and they strongly influence local choices.
• Email to existing customers — cheap and usually the highest return.
• Referral incentives — reward the customers who already love you.
• Targeted social ads — useful for visual products and local awareness, with good targeting.
• Letterbox drops and local print — still effective in some suburbs and trades, if you use a unique phone number or offer code.

business.gov.au’s online and digital resources are a useful starting point for building your online presence.

How do you scale marketing without wasting money?

Scale in steps. Increase spend on a winning channel by a set amount, run it for a few weeks, then review cost per customer before the next step.

Expect costs to rise. The first dollars reach the most ready buyers. As spend increases, cost per customer usually creeps up. Plan for it rather than being surprised.

Watch capacity. A campaign that works too well can overwhelm your team, stretch lead times and damage reviews — which raises your future marketing costs.

Keep a stop-loss. Decide the cost per customer at which you’ll pause a channel, before you start.

Separate testing from scaling. Test new channels with small, affordable amounts. Put serious money only behind proven ones.

Should you borrow to fund marketing?

It can make a lot of sense in the right circumstances — particularly when a proven channel is limited only by the cash available to put through it. A line of credit is often a good fit because you can draw for each campaign month and repay as the new customers pay. Our marketing funding playbook covers when borrowing works and when it doesn’t, and the Growth ROI calculator lets you test the payback before you commit.

Borrowing is less sensible when:

• You don’t yet know your cost per customer.
• Your margin is thin and customers rarely return.
• You can’t deliver more work without other investment.

What mistakes blow marketing budgets?

• No tracking. If you can’t connect spend to customers, you can’t tell good channels from bad.
• Spreading too thin. A little on everything often means not enough anywhere to learn.
• Chasing vanity metrics. Likes and impressions don’t pay loan repayments; customers do.
• Stopping too soon. Some channels need a few weeks to settle before the data means anything.
• Never stopping. Equally, a channel that’s failed its stop-loss for two months should be paused.
• Forgetting existing customers. Winning back or upselling current customers is usually far cheaper than finding new ones.

Ready to put more fuel behind what works?

Setting a marketing budget is really setting a growth target with a price tag. Once you know what a customer is worth and what one costs to win, the budget almost writes itself — and if the only thing holding back a proven channel is cash, that’s a problem we can help with.

Tell us what you’re spending now, what it’s delivering and what you’d like to scale. Enquiring takes about a minute and doesn’t involve a credit check at that stage. Your details won’t be shared around a crowd of lenders; a real person reads your enquiry and calls you. Accurate campaign numbers help us suggest the right facility first time.

See if you qualify for marketing growth funding →