By Jo van Vuuren — Fractional CMO
How much should a small business spend on marketing? The honest answer is that it depends, and that isn’t a dodge, it’s the actual answer. You’ll see percentage-of-revenue rules of thumb quoted with great confidence. Treat them as a rough starting point, not a strategy, because they ignore almost everything that actually determines the right number for your business.
Why percentage-of-revenue rules of thumb mislead
A rule of thumb takes one number (revenue) and ignores stage, margin, ambition and what you’re actually trying to fix. Two businesses with identical turnover can need wildly different marketing budgets: one is defending a market position it already holds, the other is trying to build awareness from a standing start. Applying the same percentage to both isn’t a shortcut. It’s a coincidence if it happens to be right for either of them.
What actually drives the right number
- Stage: building a new market or defending an existing one call for very different levels of investment
- Margin: how much a business can put behind growth without damaging profitability
- Growth ambition: a steady-state target and an aggressive one imply different spend
- What you’re trying to fix: a demand problem, a retention problem and a positioning problem all cost differently to solve
- Competitive intensity: a crowded category with well-funded competitors requires more to be heard
Start with the goal, not the budget
The order most businesses get backwards is deciding the number first and then working out what to do with it. It should run the other way. Define the commercial outcome you actually need over the next year, work out what has to happen to get there, and cost that plan honestly. If the resulting figure isn’t affordable, that’s a reason to revisit the goal or the timescale, not to quietly cut the plan while keeping the ambition, which is how budgets end up underfunding their own targets.
If the budget is fixed, work backward instead
Sometimes there genuinely is a fixed pot: a start-up’s runway, a board-approved ceiling, a difficult year. That’s a legitimate constraint, not a failure of process. The discipline runs in reverse but stays the same: instead of asking what the budget can achieve after the fact, decide upfront what a credible goal looks like at that level of spend, and be honest with the business about it. A modest, fully-funded goal beats an ambitious one starved of the investment it needs; the first is a plan, the second is a wish with a number attached.
A more useful way to set the number
Set the twelve-month commercial goal first. Identify the gap between where the business is now and where it needs to be. Cost the minimum credible activity that closes that gap, not the maximum you could spend on it. Treat the resulting figure as an investment against a return, not a fixed cost, and review it against results each quarter rather than setting it once a year and hoping.
If you take nothing else from this: don’t start the conversation with a percentage. Start it with the goal, work out honestly what achieving it requires, and let the number follow. A budget set that way is defensible in a way a rule of thumb never quite is, because you can explain exactly what it’s for.
Common questions
What percentage of revenue should a small business spend on marketing?
There’s no single correct percentage, whatever rules of thumb suggest: the right figure depends on your stage, margin, growth ambition and what you’re trying to fix; revenue alone doesn’t decide it. Two businesses with the same turnover can reasonably need very different budgets. Use a percentage as a sanity check on affordability, never as the starting point for the number.
Should a start-up spend more on marketing than an established business?
Often, relative to revenue, yes, a start-up building awareness from nothing typically needs to invest harder than an established business defending a position it already holds. But it depends on the goal: an established business entering a new market or launching a new product can need just as much relative investment as a start-up. Stage matters more than the label.
How do I know if my marketing budget is too low?
The clearest sign is a gap between the goal and the plan: if the commercial target you’ve set genuinely can’t be reached by the activity the current budget can fund, the budget is too low for that ambition. The fix isn’t necessarily more money; it can also be a smaller, more honest goal. Either way, budget and goal need to match.
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