How much should a small business actually spend on marketing?
Percentage-of-revenue rules are a lazy answer. Here's the arithmetic that tells you what you can genuinely afford to spend to get a customer.
Search this question and you'll get the standard answer: 5 to 10 percent of revenue, more if you're growing.
It's a useless number. It ignores your margins, what a customer is worth over time, and how long you can wait to get your money back. Two businesses with identical revenue can have wildly different sensible budgets.
Here's the arithmetic that actually answers it.
Start with what a customer is worth
Not what they pay you the first time — what they're worth in total.
Take average job value, multiply by how many times a typical customer buys from you, and multiply by your gross margin. That's your customer lifetime value.
A detailer charging 200 dollars who sees a customer three times a year for two years at 60 percent margin: 200 × 6 × 0.6 = 720 dollars of gross profit per customer.
Most businesses dramatically underestimate this because they only count the first sale.
Decide what you'll pay to acquire one
Now the real question: what fraction of that 720 are you willing to spend to win the customer?
A common target is a 3:1 return — spend a third, keep two thirds. That gives you 240 dollars to acquire a customer.
That number is your actual budget constraint. Not a percentage of revenue. If you can reliably acquire customers for under 240 dollars, you should keep buying them until you run out of capacity or the channel stops working.
Work backwards to the channel
Now the maths gets useful. If your website converts 3 percent of visitors into enquiries, and you close half of those, then every hundred visitors produces 1.5 customers.
At 240 dollars per customer, a hundred visitors is worth 360 dollars to you. That means you can pay up to about 3.60 per click and still make the numbers work.
Suddenly you can tell instantly whether a channel is viable. If clicks in your market cost eight dollars, either your conversion rate has to improve or that channel isn't for you.
Cash flow decides the pace
Lifetime value is earned over years. Advertising is paid for today.
If your 720 dollars arrives over two years but you spend 240 up front, you're funding a gap. That's fine if you have the cash and dangerous if you don't. This is how businesses grow themselves into insolvency while every spreadsheet says they're profitable.
Look at payback period — how long until a customer has repaid what you spent to get them. Under three months, scale aggressively. Over twelve, be careful.
What this means in practice
If you're under 500k in revenue, most of your budget should go to things that compound and don't need constant feeding: your website, your Google Business Profile, reviews, search visibility. Paid ads are for once you know your numbers.
If you're growing and know your numbers, spend to the limit of what the maths allows, as long as capacity holds. A channel returning 3:1 should be fed, not budgeted.
If you don't know your customer lifetime value, that's the first project. Everything else is guesswork until you do.
The honest caveat
These numbers are averages, and averages hide things. Your best customer might be worth ten times your worst. If you can identify what the good ones have in common, you can spend more to get more of them — and that's usually a bigger win than optimising a budget.
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