Marketing budget for a small business: how to set it and split it

Most small businesses set a marketing budget by feel: what is left at the end of the month, or what a competitor seems to spend. This post shows a sounder way to set a marketing budget for a small business. You will work out a budget from the customers you want and what each one is worth to you, split it into fixed, proven and test money across search, your Google Business Profile, social media and ads, and review it once a month so the money moves to what works. A made-up gym in Bengaluru runs the numbers with you.

Why a "share of revenue" rule does not help

You will often hear that a business should spend a set share of its revenue on marketing. We found no official source, from a government body or an ad platform, that sets such a share for small businesses, and a percentage cannot tell you whether the money will come back. A shop with a high margin and loyal customers can afford to pay far more for a new customer than one with a thin margin and one-off sales, even at the same revenue.

So start from the other end: what you want marketing to bring, and what you can afford to pay for it. Two numbers do most of the work: how many enquiries become customers, and what a customer is worth to you over time.

Start from a goal and what a customer is worth

Google Ads Help suggests a simple way to estimate the value of a lead: your average sale, times your profit margin, times the share of leads that become customers. The same page notes that repeat business can raise that value. A customer who buys once is worth one sale's profit; one who comes back every month for a year is worth much more.

Put your own numbers into our LTV & CAC Calculator: average order value (it takes GST out if your prices include it), orders a year, gross margin and how long customers stay. It shows the customer lifetime value as gross profit and, with a target ratio you choose, the most you can spend to win one customer. Its starting target of 3, meaning ₹3 of gross profit back for every ₹1 spent winning a customer, is only our suggestion; set your own from your margins and cash.

Write down three numbers before you plan anything: the new customers you want each month, your close rate (the share of enquiries that become customers, from your sales register or WhatsApp chats), and the most you can pay to win one customer.

Work the budget back from your goal

Our Marketing Budget Planner works backwards through your funnel. Choose a goal in new customers or revenue, enter the average value of a first sale and your close rate, then list your channels with the share of leads each should bring and what a lead costs there. You get:

• the leads you need: new customers ÷ close rate;
• the budget for each channel: its leads × its cost per lead;
• 18% GST added to the rows you mark as ad platforms;
• the cost per customer and the revenue to expect;
• an optional 12-month plan with your busier months raised, which you can download as a CSV file.

Use your own cost per lead from past campaigns where you have it. If you have never run ads, our posts on a starting Google Ads budget and a Meta ads budget show how to estimate one before you spend.

Remember tax. Google's page on taxes in your country lists 18% GST when Google India bills you, and Meta's page on ads bought in India says they are billed in rupees and subject to GST, so check the rate on your Meta invoice. The budget you set in either platform is before tax. A GST-registered business can often claim the GST back as input tax credit; ask your accountant, as this post is not tax advice.

Fixed money, proven money and test money

Once you know the total, split it into three pots (our suggestion):

• Fixed money pays for what runs every month whatever the results: website hosting and upkeep, photos and design for your posts, the tools you pay for, and any monthly fees for SEO or content.
• Proven money goes to the channels whose cost per customer you already know is within your limit. It rises or falls each month with their results.
• Test money is a small, separate amount for one new idea at a time: a new channel, a new audience or a new offer. Before the test starts, write down how long it runs, what it can spend and the cost per customer at which you stop it.

How big the test pot is depends on your cash and your margins, not on a rule. Keep it small enough that losing all of it would not hurt the month, and run each test long enough to judge it, because ad platforms need time to learn.

The channels: what each one costs you

Every channel costs something, even when it sends no bill. The difference is whether you pay in money, in time or both, and how soon you can tell whether it works.

Search (SEO)

Showing in Google search for what customers type costs time or fees for pages, content and fixes, but nothing per click. It is slow: Google's SEO Starter Guide says some changes take effect in a few hours and others could take several months, as our post on how long SEO takes explains. Budget for it as fixed money, and judge it on enquiries from search over months, not on next month's sales.

Local: your Google Business Profile

Google's Business Profile page says creating a profile and listing your business on Google is free of cost. What it needs is time: accurate details, photos, posts, review requests and replies. For a business that meets customers in person, this is often the cheapest place to start, so give it a few hours a week before you buy ads.

Social media

Organic posts on Instagram, Facebook, LinkedIn or WhatsApp cost time, photos and design. Count the enquiries they bring (direct messages, calls and link clicks tagged with UTM codes) rather than likes, so you can compare them with the other channels.

Ads: Google and Meta

Ads cost money for every click or view, plus GST, and start bringing visits as soon as they run, so they are the easiest channel to measure and to move money in or out of. Google treats your budget as a daily average: its page on average daily budgets says a campaign can spend up to twice the average daily budget on a busy day, and its page on spending limits says you are not charged more than 30.4 times your average daily budget in a month, for most campaigns. So divide your monthly Google Ads budget by 30.4 to get the daily one.

A worked example: Iron Lotus Fitness, Bengaluru

Iron Lotus Fitness is a made-up gym in Indiranagar, Bengaluru. Every number below is made up to show the method; use your own.

The owner wants 30 new members a month. A first sale is a three-month membership at ₹9,000 before GST, and 25% of enquiries join, so the planner says the gym needs 30 ÷ 0.25 = 120 enquiries a month. The owner splits them like this:

The ads come to ₹21,600 before GST and ₹25,488 with it. Google Ads wins a member for ₹16,992 ÷ 12 = ₹1,416, and Meta Ads for ₹8,496 ÷ 9 = ₹944.

Are those costs safe? In the LTV & CAC Calculator the owner enters a monthly fee of ₹3,000 before GST, 12 payments a year, a 40% gross margin and 12.5% monthly churn, which means members stay 100 ÷ 12.5 = 8 months on average. A member is worth ₹3,000 × 8 × 40% = ₹9,600 in gross profit. At the suggested target of 3, the most the gym should spend to win a member is ₹3,200, so both ad channels are well inside the limit.

On top, the owner keeps ₹10,000 a month of fixed money for a part-time designer and website upkeep, and ₹6,000 plus GST of test money for four weeks of Meta ads for a new women-only morning batch, to be stopped if its cost per member goes above ₹3,200. The whole plan: ₹10,000 fixed, ₹25,488 proven and ₹7,080 test, or ₹42,568 a month.

Review it every month

A budget is a guess until the first month's results come in. Set aside an hour at the start of each month (our suggestion) and go through the same steps:

1. Count the enquiries and new customers from each channel. Use your own register, not only the platforms' reports: a click is not a customer.
2. Work out each channel's cost per customer, with GST, and compare it with the most you can pay.
3. Move proven money from the channel with the highest cost per customer to the one with the lowest.
4. End, extend or promote the test, using the stop rule you wrote down at the start.
5. Update your close rate and customer value in the calculators, because both change with seasons and offers.

Do not judge new campaigns too early. Google's page on bid strategy statuses explains that an automated bid strategy shows "Learning" when it is new or after its settings change. Meta's page on Learning limited says an ad set is shown that way when it is unlikely to get around 50 optimisation events in the week after its last significant edit, and that this is not a penalty. A small test may stay in learning, so judge it on cost per customer over its full run.

To count enquiries properly, track calls and WhatsApp taps from your ads, as our post on tracking calls and WhatsApp leads shows, and use our monthly Google Ads check-up for the account itself.

Mistakes to avoid

• Copying a share of revenue, or a competitor's spend, instead of working from your own close rate and customer value.
• Comparing channels on cost per click or likes rather than cost per customer.
• Forgetting GST on ad invoices, so the plan runs out before the month ends.
• Judging SEO and your Business Profile on one month, or ads on their first week.
• Running several tests at once, so you cannot tell which change worked.
• Counting only the first sale for a business whose customers come back.

Your next step

Open the Marketing Budget Planner with your goal and close rate, then check the cost per customer it gives against the LTV & CAC Calculator. If you are weighing whether to hire help, our SEO & Marketing Cost Calculator shows which of our plans fits your answers, its starting price as published on our service pages and your Google Ads budget with GST; it is a starting point, not a quote. To see where your website stands first, run a free SEO audit.