How to set a marketing budget for a small business

This guide draws on the U.S. Small Business Administration's marketing and sales guide and two Google Ads help pages: About average daily budgets and About conversion measurement. Where we give our own view rather than a source's, we say so.

The short answer

Write down what marketing has to achieve this year, estimate what each activity needs to get there, and check the total against what the business can afford. Put the fixed costs (website, tools, your own time, or agency fees; see agency or in-house) in first, keep a small fixed amount for testing a new channel, and only raise spend on a channel once tracking shows it brings in customers for less than they are worth to you. Review the numbers every month.

The SBA puts the budget inside a marketing plan: "One of the best ways to stay on schedule and on budget is to make a marketing plan." Its plan has a budget section that asks you to "Include a complete breakdown of the costs of your marketing plan" and adds: "You'll want to keep tracking your costs once you put your plan into action." The marketing plan is the wider document (our guide to writing a small business marketing plan covers all of it); this page covers only the money.

Start from the goal: objective and task

The objective-and-task method builds the budget from the bottom up. You set a goal, list the tasks that should reach it, cost each task, and add them up. The SBA's examples of goals are "to increase email subscribers, grow market share, or increase sales by a certain percent." Its worked example, an auto repair shop, aims "to serve at least a certain number of new customers each month."

In practice, a plain sheet with four columns is enough:

• Goal: for example, a number of new booked jobs per month.
• Task: what you will do for it, such as a search campaign, a monthly email or updates to your Google Business Profile.
• Cost: money and hours. Your own time is a cost even when no invoice arrives.
• Measure: how you will see the result: calls, form leads, bookings, sales.

If the total is more than you can spend, cut tasks or lower the goal. Do not keep the goal and quietly underfund the tasks; that produces a budget that looks fine on paper and cannot work.

Percentage of revenue

The second common method sets marketing as a share of revenue: last year's sales, or this year's forecast, multiplied by a percentage you choose. Its strength is that spend stays in proportion to the size of the business. Its weakness is that it is backwards for a business that wants to grow: when sales fall, the budget falls with them, exactly when you may need more customers.

You will see many percentages quoted online. The SBA guide above does not give one, and we did not find a primary source that sets one for small businesses in general, so we do not give a number here. If you use this method, pick the share from your own figures: your gross margin, how much cash you can tie up for a few months before results come back, and what a new customer is worth to you over time. Then use objective and task as a check that the amount can pay for real work.

A fixed amount for a test

For a channel you have never used, set a fixed amount and a fixed period, decide in advance what result would count as success, and stop when either runs out. The point of a test is to learn whether the channel can bring customers at a cost you can carry, not to win on day one. Our view: keep test money separate from the money that pays for channels you already know work, so one bad test does not starve your proven channels.

Splitting the budget across channels

A simple way to split the money, in our view, is in three layers:

• Foundations: costs that keep running whatever you do, such as your website, hosting, email software and design tools. Without them, paid traffic has nowhere useful to land; see landing page basics.
• Owned channels: mostly time rather than money, such as email to your own list, your Google Business Profile and helpful content on your site.
• Paid channels: search ads, social ads, sponsorships, print, radio. These scale with money, so they are where tests and tracking matter most.

The SBA's auto repair example spreads its spend across ads on "the websites of two local TV news stations, as well as the local newspaper's website" and "ad time on a local radio station." There is no right number of channels. Our view: a small budget spread over many channels gives each one too little to show a result. Two or three channels done properly teach you more than six done thinly.

A test budget for paid ads

Google Ads does not take a monthly budget directly. You set an average daily budget for each campaign, which Google describes as "how much you are roughly comfortable spending each day over the course of the month." To turn a monthly amount into a daily one, Google divides by 30.4, the average number of days in a month; its help page uses $304 a month as the example, which gives $10 a day. Daily spend can vary: Google's limits are two times the average daily budget on any one day and 30.4 times it in a month, for most campaigns. Our guide to Google Ads budgets and bidding covers those limits and bid strategies in detail.

Meta ads (Facebook and Instagram) set budgets at the campaign or ad set level; see Meta ads basics and campaign vs ad set budget.

For a first paid test, our view is to choose one campaign with one clear goal, a budget you could lose without harm, and a run long enough to collect results before you judge it. Decide the stop rule before you start.

Tracking before spending

Set up tracking before the first paid click, not after. Google's help page explains that with conversions "You choose what you identify as valuable, like a purchase, sign-up, or phone call," and that measuring them helps you "Understand your return on investment (ROI) and make better informed decisions about your ad spend." Without it, you can only see clicks, and clicks do not pay the bills.

• Google Ads conversion tracking for forms, calls and purchases.
• UTM tracking links on emails, social posts and other links you share, so analytics can tell the sources apart.
• A simple analytics report that shows leads and sales by source.

The SBA notes that some tactics, such as print advertising or word of mouth, are hard to measure, and advises you to "be consistent in how you measure the effectiveness of your marketing efforts." A tracked phone number or a "how did you hear about us" question on your form helps here.

A monthly review

The SBA asks you to "compare your marketing and sales costs to the revenue it generates" and says "Marketing plans should be maintained on an annual basis, at minimum." Our view: look at the money every month, and rewrite the plan once a year. A monthly review can be one table:

• For each channel: spend, leads, customers, revenue from those customers.
• Cost per customer, compared with what a customer is worth to you. Our guide on how to calculate marketing ROI shows the maths with gross profit.
• One decision per channel: keep, raise, lower or stop.
• What you changed this month, so next month's numbers make sense.

Move money toward what works, slowly, and keep the test amount for the next idea.

Frequently asked questions

What percentage of revenue should a small business spend on marketing?

There is no single correct figure. The SBA's marketing guide does not set one, so we do not either. Work out what your goals need (objective and task), then check that total against your margin and cash.

How much should I spend on a first Google Ads test?

An amount you could lose without harm, run long enough to collect results. Google sets budgets per day: divide a monthly amount by 30.4 to get the average daily budget. Set up conversion tracking first.

How often should I review my marketing budget?

The SBA says to maintain your marketing plan at least once a year. Our view is to check spend and results by channel every month and change the plan once a year.

If you would like help with the paid part, our online advertising service sets up and runs Google Ads and Meta ads for local businesses, tracking first, with a budget you set; the ad accounts stay in your name and you pay the platforms directly.