"How much should we spend on marketing?" is one of the most common questions MDs ask, and one of the most commonly answered badly. Setting a marketing budget for a small business in the UK shouldn't start with a rule of thumb. It should start with how much new business you need and work backwards to what it takes to win it.
Why percentage-of-revenue rules mislead
You will often hear that a business should spend a set percentage of turnover on marketing. It sounds sensible and it is easy to calculate, but it has three problems.
It looks backwards. A percentage of last year's revenue tells you what you can afford, not what you need. A business planning to grow quickly and one planning to stand still would get the same budget.
It ignores your sales economics. A business with a high average deal value and long client relationships can justify spending far more to win a client than one selling small, one-off jobs. A flat percentage treats them the same.
It encourages spending without a target. If the budget is a fixed slice of turnover, there is no clear test of whether it worked. Money gets spread across activities because it is there, not because each one has a job to do.
Benchmarks can be a useful sense-check once you have done your own sums. They shouldn't be the starting point.
Work backwards from the goal to set your marketing budget
A more useful approach is to start with the result you want and follow the numbers back to the budget. You need four figures, most of which you already have or can estimate:
- New revenue needed from new clients over the period.
- Average deal value for a new client.
- Win rate: the share of qualified enquiries that become clients.
- Cost per qualified enquiry from your marketing channels.
Then the sums are simple:
- New revenue needed ÷ average deal value = new clients needed
- New clients needed ÷ win rate = qualified enquiries needed
- Qualified enquiries needed × cost per enquiry = marketing budget
A worked example
These numbers are purely hypothetical round figures to show the method, not a benchmark.
Say a business wants £200,000 of new revenue from new clients next year, and its average new client is worth £10,000. That means it needs 20 new clients.
If it wins one in four qualified enquiries (a 25% win rate), it needs 80 qualified enquiries over the year.
If each qualified enquiry costs around £150 to generate across its channels, the marketing budget to hit the goal is roughly £12,000 for the year, plus any foundation work needed to make those channels perform.
The value of this approach is that every number is a lever. Improve the win rate from one in four to one in three and you need fewer enquiries. Increase the average deal value and you need fewer clients. Often the cheapest way to grow is not to spend more on marketing but to convert better what you already get. Our website ROI and sales pipeline calculator lets you run these sums with your own figures.
If you don't know your cost per enquiry or win rate yet, make a cautious estimate, set the budget, and commit to measuring the real figures from day one.
Split the budget: foundations, ongoing and testing
Once you know the total, divide it into three pots with different jobs.
Foundations. The things that make every other pound work harder: a clear position and message, a website that turns visitors into enquiries, a CRM that captures and tracks them, and the content your sales team needs. These are often one-off or occasional costs. If your website isn't producing enquiries, fixing that usually comes before spending more on traffic.
Ongoing activity. The channels that reliably produce qualified enquiries for you, whether that is email, LinkedIn, search, events or referrals. This is the engine, and it should get the largest share once foundations are in place.
Testing. A smaller, ring-fenced amount for trying new channels or messages. Set a clear test, a time limit and a success measure. If it works, it graduates to ongoing. If not, you have learned something cheaply.
The right split depends on where you are. A business with weak foundations should invest there first; one with a strong website and CRM can put more into ongoing activity.
Review quarterly
A budget is a plan, not a promise. Every quarter, compare what actually happened against your assumptions:
- How many qualified enquiries did each channel produce, and at what cost?
- What was the real win rate and average deal value?
- Which activities should get more, and which should stop?
Move money towards what is working and away from what isn't. Over time your estimates become real data, and the budget becomes far easier to defend. For the figures worth tracking each month, see the five marketing numbers every MD should see.
Frequently asked questions
What is a sensible marketing budget for a small business in the UK?
There is no single right figure. The sensible budget is the one that produces the qualified enquiries you need to hit your revenue goal at a cost per enquiry your margins can support. Work it out from your own numbers rather than a generic percentage.
Should we spend on the website or on advertising first?
If your website doesn't turn visitors into enquiries, sending more traffic to it wastes money. Fix the foundations first, then scale the channels that bring people in.
What if we don't know our win rate or cost per enquiry?
Estimate cautiously, start tracking now and review after a quarter. Even rough figures are better than a budget with no link to results, and your CRM should give you real numbers quickly.
Build your budget around a plan
A budget only works if it sits inside a clear strategy. Download our free one-page marketing strategy template to set your goals and channels, then use the revenue calculator to test the numbers.
