“How much should I be spending on marketing?” This question comes up in just about every consult I have with a small business owner. It’s a fair question with a frustrating answer: it depends. Your small business marketing budget hinges on your goals, your margins, your market, and how much marketing you’re already doing. There’s no single correct number. But there is a reliable process for finding yours, and that’s what this post walks through. As a rough starting point, most small businesses land somewhere between 5% and 10% of gross revenue: closer to 5% if you’re maintaining an established position, closer to 10% (or beyond) if you’re in growth mode or a competitive market. Treat that as a range to sanity-check your math, not a rule to follow blindly.
As a small business, how much should you spend on marketing?
Before marketing, you need goals. Before goals, you need motivation. Your goals will determine how much you should spend. Increasing revenues by 5% requires far less marketing spend than increasing revenues by 20%. So this is where you start. Many small business owners aren’t sure what their goals should be. Is a 10% increase the right target? Too much? Too little? It may feel like each question just opens more questions, but the funnel does bottom out. Work through it and you’ll be able to answer the high-level question of “how much should I spend on marketing?” with an actual number.
The motivator: determine why your revenues need to increase
Should your company grow revenue by 40% this year? Or will 5% do? You need to understand WHY you want to grow. Many business owners operate on “we just need to grow” without any reason behind it, and that mindset is not a profitable one. Here are common motivators for needing to increase revenue:
- The need to hire more employees
- The need to expand your product or service line into more locations
- The need to produce more output in a given time period
- The need for a larger office, shop, or manufacturing space
“The need to advertise” is not a motivator. You must have a reason to spend money to make money. Your motivator drives your goals. Your goals drive your marketing.
Now that you have goals, set the actual budget
Here’s a simple illustration. Say your company does $500k in annual revenue and you want a new office space that adds $25k per year in costs. A 5% revenue increase would barely cover the new cost, so you set the goal at 10%: a new annual target of $550k. To get there, you either raise prices by 10%, increase sales volume by 10%, or some combination. Neither is easy. For this example, we’ll focus on increasing sales. You now have a growth goal and a concrete reason it needs to happen. That’s your starting point. The same math works whether your revenue is $150k or $5M; only the dollar amounts change.
Different ways to allocate your small business marketing budget
Sales is a system of funnels: website traffic to leads, leads to warm leads, warm leads to sales conversations, sales conversations to customers. If the end goal is a 10% increase at the final stage (closing), every stage before it has to be influenced enough to collectively produce that 10%. Don’t throw all your marketing dollars in one bucket. A healthy marketing portfolio spreads spend across awareness, attraction, conversion, and closing so the whole funnel is covered. For online marketing, the main levers are:
- SEO (search engine optimization) for attracting targeted website traffic, including visibility in AI search tools like ChatGPT and Google’s AI Overviews, where more buying research happens every year
- Conversion campaigns and analysis for capturing leads and increasing visitor-to-lead conversion rates
- Content and email marketing for nurturing a lead through to close
- Paid advertising to drive a steady flow of traffic to your conversion campaigns, especially early on
- Social media advertising, listening, and monitoring
How you weight each category depends on how much marketing you’re currently doing, your website’s traffic and analytics, your sales process, and your audience. A marketing professional’s job is to spread your resources across the funnel in a way that can actually influence that 10% increase at the close. And don’t forget offline channels; a holistic strategy should always consider them.
Ensuring you get a positive ROI on marketing
Marketing is a numbers game, and this is why online marketing is so powerful: everything is tracked. Traffic, conversions, cost per lead, revenue per channel. Interpreted properly, that data shows you exactly what’s working and what’s wasting money, which is something a billboard can never tell you. What does this mean for you? By investing in trackable channels (inbound marketing, SEO, paid ads, conversion optimization) you give yourself the best possible shot at positive ROI, provided the data is read correctly. Keep in mind, WHO runs your marketing has a lot to do with that.
Growing your small business with online marketing
Don’t get sucked into the “SEO” buzzword. SEO alone is not a marketing strategy. You can rank #1 and pull in traffic all day long, and the #3 company will still outsell you if their funnel converts and yours doesn’t. An effective strategy depends on conversions and sales, not just traffic. If you’d like help turning these frames into an actual number and plan for your business, book a strategy call with us. The first conversation costs you nothing, and you’ll leave with a clearer answer than any percentage rule can give you.
FAQ
How much should a small business spend on marketing?
A common rule of thumb is 5% to 10% of gross revenue: the lower end for maintaining an established business, the higher end for growth mode or competitive markets. The better approach is to work backward from a specific revenue goal and fund the marketing required to hit it.
What is a good marketing budget for a new business?
New businesses usually need to spend at the higher end of the range, and sometimes beyond it, because they’re building awareness from zero. Prioritize the foundations first: a website that converts, Google Business Profile, and SEO. Then layer in paid advertising to generate traffic while the organic work matures.
Should I spend my marketing budget on SEO or paid ads?
Both, in most cases. Paid ads produce traffic immediately but stop the moment you stop paying. SEO compounds over time and keeps producing after the work is done. A common pattern is leaning on paid early for immediate flow, then shifting weight toward SEO and content as organic traffic grows.