How to Set a Marketing Budget for Your Small Business

Most small business owners I work with do not have a marketing budget. They have a marketing habit: a bit of Google Ads here, a boosted post there, and a gut feel about whether any of it worked.

The number itself matters far less than knowing what each dollar is supposed to produce. So this is not a post about percentages. It is a method for picking a number you can defend, splitting it deliberately, and reviewing it monthly instead of annually.

Why a marketing budget beats ad hoc spending

Ad hoc spending fails for one reason, and it is not the amount. Without a budget you cannot tell the difference between a channel that does not work and a channel that was never given enough time or money to find out. Every decision becomes a feeling, and usually a nervous one, which is how businesses end up switching channels every few months and concluding that marketing is a waste.

A budget does three things. It caps the downside, so a bad month cannot damage the business. It creates a fixed comparison, so you can see whether a channel improved or got worse. And it forces the conversation about what a lead is worth to you, which is the number most owners have never worked out.

How much should a small business spend on marketing?

There is no universal answer, and anyone who gives you one without asking about your margins is guessing. What you can do is size the number three different ways and see whether the answers cluster.

The percentage of revenue method

Take a percentage of revenue and treat it as an envelope, not a target. It is fast and it keeps you inside what the business can fund. Its weakness is that revenue tells you nothing about whether the money is working. A business spending 10% of revenue badly will still lose to a business spending 5% well.

The industry benchmark method

Look at what comparable businesses in your sector allocate, then adjust for your situation. A growing business should generally run above the average for its sector because it is buying share rather than defending it. A mature business with repeat customers can often run lower and put more into retention. Benchmarks are a sanity check, not an instruction.

The goals first method

This is the one I use, and it is the one most owners have not tried. Decide how many new customers you need this quarter. Multiply that by your realistic cost per sale to get the total. Then ask whether the business can fund that from gross profit. If the answer is no, you have found either a margin problem or a pricing problem, and no amount of media buying will solve either. If the answer is yes, you have a number you can defend to yourself and to anyone else who asks.

What the published benchmarks actually show

Two benchmark sets are worth knowing, and they pull in different directions, which is the interesting part.

What large company data reports

Semrush, reporting Gartner's CMO Spend and Strategy Survey, states: "In 2023, the average marketing budget was 9.1% of total revenue, according to Gartner's CMO Spend and Strategy Survey." That is a large company figure drawn from a survey of big marketing departments. Treat it as a reference point for scale, not a rule for your business.

The same Semrush page shows how widely sectors differ: "consumer packaged goods companies allocated an average of 22.61% of their overall budgets to marketing in 2023. For mining and construction companies, that percentage dropped to 3.75%." A consumer goods brand lives or dies on shelf attention. A mining contractor wins work through relationships and tender processes. The gap between 22.61% and 3.75% is not a difference in competence, it is a difference in how customers arrive.

Why smaller businesses usually run higher

Smaller businesses often spend a higher percentage than the average for their sector, particularly in the first few years. There are two reasons. The first is that they do not have existing brand recognition doing free work for them, so every enquiry has to be bought or earned. The second is scale: if your revenue base is small, a modest absolute spend is a large percentage.

Worth adding, in case anyone thinks the market is easy: the ABS reports that "At 30 June 2026 there were 2,814,778 actively trading businesses in the Australian economy, with 996,203 of these businesses being employing." Competition for attention is not thinning out. In the same ABS release, the ABS puts the turnover at "16.9% entry rate, with 460,461 entries" and "13.8% exit rate, with 375,331 exits." A large share of those exits are businesses that never got a reliable answer to where their next customer was coming from.

Splitting the budget: acquisition, retention and brand

Once you have a total, split it. Most small businesses put everything into acquisition and then wonder why churn keeps eating the growth.

How much belongs in search and SEO

For most Australian service businesses, search is the highest intent channel available, because the person searching is already describing a problem you solve. That is why search and search engine optimisation usually deserve the largest single share of a small budget. Paid search produces leads faster and stops the moment you stop paying. SEO compounds, but slowly, and it cannot be judged month to month.

A workable starting split for a small service business is roughly half into search across paid and organic, a quarter into retention through email and existing customer work, and the remainder held for testing and for the channel that matches how people actually discover you, which for some trades and local retailers is still Google Business Profile and reviews rather than a website.

What to hold back for testing

Hold back a defined slice, somewhere between 10% and 20%. Money with no assigned job is the only money that can be spent on something new without starving what already works. Without it, every test has to be taken out of a working channel, which means you never test anything.

Fixed costs and variable costs, and why the mix matters

Split the budget into fixed and variable as well as by purpose. Fixed costs are the ones that continue whether or not you run campaigns: hosting, your email platform, your reporting tools, a retainer. Variable costs are the ones that scale with activity: ad spend, a freelancer paid per article, landing page production.

The distinction is practical. When cash gets tight, you can cut variable spend in a week and pause it without breaking anything. Cutting fixed costs takes longer and has consequences. A budget where 80% of the total is fixed gives you almost no room to respond to a slow quarter. A budget where almost everything is variable usually means you are renting attention and own nothing, which is the situation that leaves businesses with no compounding asset after three years of spending.

If the numbers look uncomfortable at this point, that is usually a margin or offer problem rather than a marketing problem, and it is worth putting them through the marketing budget calculator before you commit to a channel.

Building the budget in nine practical steps

Set aside an hour and work through this in order. Do not skip to the number.

One, work out your gross profit per sale, not your revenue per sale. Two, decide how many new customers you need in the next quarter. Three, estimate a realistic cost per sale from your last six months of data, or from the best evidence you can find if you have no data yet. Four, multiply customers by cost per sale to get a funding requirement. Five, compare that against a percentage of revenue, using a figure in the range the benchmarks suggest for your sector. Six, split the total across acquisition, retention and testing. Seven, separate fixed from variable. Eight, write down the one number each channel is accountable for producing. Nine, set the review date now, 90 days out, before you spend anything.

If steps four and five land in completely different places, the gap is the finding. Either your growth target is unrealistic against your margin, or your cost per sale assumption is wrong. Both are worth knowing before you spend a dollar.

The numbers to review every month

Monthly review, not annual. Ninety days is long enough for a channel to produce usable data and short enough that you can still change direction.

Cost per lead and cost per acquisition

Cost per lead is what you paid for each enquiry. Cost per acquisition is what you paid for each one that became a customer. Track both, because a channel with a cheap lead and a poor conversion rate is more expensive than it looks. If leads are cheap and customers are not appearing, the problem is usually the offer or the follow up, not the advertising.

Return on ad spend

Return on ad spend is revenue attributed to advertising divided by the advertising cost. It is only as good as your attribution, so be honest about what it excludes. Phone enquiries, walk ins and referrals that started with an ad rarely get counted, which usually means the reported figure understates the real return. Use it as a comparison between channels rather than as an absolute score.

Pipeline value, not just clicks

For any business with a sales cycle longer than a week, clicks are close to useless as a monthly measure. Track the value of the quotes and proposals sitting in your pipeline instead, and how many of them came from each channel. A quarter where leads dropped but pipeline value rose is a good quarter, and a clicks-only report would call it a bad one.

The Australian tax position in plain terms

The ATO is direct about the general position: "You can claim a tax deduction for most business expenses, provided they meet our 3 golden rules." In practice, the rules come down to whether the expense was for carrying on your business and whether you kept the record. Advertising and marketing costs are ordinary running costs, so platform invoices, agency fees and software subscriptions all belong in the same place as your other business costs.

The ATO's own small business guidance works through a concrete example: "She knows she can claim business-related expenses like wax supplies, a portion of her electricity used to melt wax, and marketing costs for her website and social media ads." Two things follow from that. Marketing is treated as a routine business cost, and the apportionment principle applies where something is used for both business and private purposes.

Keep every platform invoice and every receipt, including the small ones, because the record is what makes the deduction defensible. I am not an accountant and this is not tax advice. Confirm your own position with your tax agent before you plan around it.

What to do when the budget is very small

If the total is a few hundred dollars a month, the temptation is to spread it thinly across several channels so that something is running everywhere. Resist that. Put the whole amount into one channel and one offer.

For most Australian service businesses under $500 a month, the highest return is not buying traffic at all. It is fixing the things that convert traffic you already have: the site load speed, the clarity of the offer, the enquiry form, and the Google Business Profile. Paid clicks sent to a page that does not convert is the fastest way to spend a small budget and learn nothing.

Once the site converts, then buy traffic. At that point even a small spend produces a measurable cost per lead, which is the first real marketing data your business will have.

Do it yourself or bring in a consultant?

Building the budget yourself is the right starting point, because the numbers come from your margins and nobody else has them. Where outside help earns its fee is at the next step: turning the budget into a written plan with an owner and a measure against each line, and setting up the reporting so the monthly review takes ten minutes instead of an afternoon.

If you are at the stage where the split is unclear and the channels keep changing, turn the budget into a written marketing strategy rather than guessing for another quarter. If you already spend and cannot say what it returns, measure return properly with an ROI analysis before you increase anything. Start with the calculator rather than a proposal: put your revenue, margin and growth target in, and you get a spending range you can defend to yourself. If the number looks uncomfortable, that is usually an offer or margin problem rather than a marketing problem, and I am happy to look at both. You can also talk through your budget with me directly.

Frequently Asked Questions

How much should a small business spend on marketing?

There is no universal percentage, and anyone who quotes one without asking about your margins is guessing. A defensible approach is to work backwards from a target: decide how many new customers you need, multiply by your realistic cost per lead and cost per sale, and see whether that total is a number the business can fund from gross profit. Published benchmarks such as the 9.1% of total revenue figure reported by Semrush are a sanity check on that number, not a target.

Should I budget monthly or annually?

Set the annual figure first so you know what you are protecting, then convert it to a monthly envelope. Marketing that stops and starts every time cash gets tight never compounds, and search visibility in particular needs continuity.

What if I only have a few hundred dollars a month?

Put it in one channel and one offer rather than spreading it. For most Australian service businesses under $500 a month, the highest return is usually fixing the site and the Google Business Profile before buying traffic, because paid clicks to a page that does not convert is the fastest way to waste a small budget.

Is marketing tax deductible in Australia?

Generally yes, and the ATO states that "You can claim a tax deduction for most business expenses, provided they meet our 3 golden rules", which include business use and keeping records. Advertising and marketing costs are treated as ordinary running costs, so keep every invoice and platform receipt. I am not an accountant: confirm your own position with your tax agent.

How quickly should I expect a return?

Paid channels can produce leads in the first fortnight and should be judged on cost per lead within 60 to 90 days once you have enough data. SEO and content typically take longer, often three to six months before the trajectory is clear. Budget for both horizons separately rather than judging everything on one month.

How many marketing tools and subscriptions should a small business carry?

Fewer than most do. List every tool, write the monthly cost next to it, and keep only the ones where you can name the decision it changes. Platform fees, hosting, email and reporting should sit in the budget as fixed costs so they are never mistaken for campaign spend.