“What should we be spending on marketing?” comes up in nearly every first conversation I have. Usually about twenty minutes in, and usually with a slightly apologetic laugh, as though there’s a right answer the business owner should already know.
There isn’t one. There is a way of working it out that beats picking a number and hoping, and it takes about an hour with a spreadsheet.
The percentage rule, and what it’s good for
The advice you’ll find first is to spend a percentage of turnover. Depending on who’s writing it and what they’re selling, you’ll see anything from 2% to 10%.
On £5m of turnover that’s somewhere between £100,000 and £500,000 a year. A £400,000 range is a shrug with a number attached to it.
The percentage does have a use. Once you’ve built a budget from the bottom up, it’s a decent sanity check. If your working says you need 25% of turnover to hit next year’s target, something in the plan is wrong: the target, the margin, or the channel you’ve chosen to get there. And if it comes out at half a percent, you’re under-investing and then wondering why nothing grows.
So use it at the end. Starting there gives you a number with no reasoning underneath it, which is exactly the budget that gets cut first when things get tight.
Four things that move the number more than turnover does
Your margin. A £5m business making 8% net has around £400,000 of profit to work with. A £5m business making 35% has well over a million. Those two businesses cannot sensibly spend the same on marketing, and turnover tells you nothing about which one you’re looking at.
What you want to happen next. Holding steady, growing 10%, and doubling in three years are three different budgets. Growth gets bought, and the faster you want it the more you pay up front, before the revenue turns up to fund it.
How long your sales cycle is. If someone enquires in January and signs in September, this year’s budget is buying next year’s revenue. That gap has to be funded, and it’s the reason marketing so often gets cut at precisely the wrong moment. The spend stops, nothing appears to happen for a quarter, and then the pipeline empties.
What you’re starting from. A business with a website nobody can find, no conversion tracking and no email list has a one-off cost to clear before an ongoing budget means much. Don’t fold that into your annual figure and then feel disappointed with the return. It’s a separate line.
The maths I’d actually use
Work backwards from the outcome you want, in this order.
1. What’s a customer worth? Gross profit over the life of the relationship, not the first invoice. If you sell a £2,000 service that people buy twice a year for four years at 40% margin, that customer is worth £6,400, and you can afford a great deal more to win them than the first sale suggests.
2. How many more do you want? A real number, for the next twelve months. “More” is not a target.
3. How many enquiries does one customer take? If you close one in four qualified enquiries, twenty new customers means eighty enquiries. Most businesses can get to this figure from their sales records in half an hour.
4. What does an enquiry cost you? If you’re already advertising, you have this number, even if nobody has looked at it recently. If you’re not, take your best guess from a small test rather than a figure you read somewhere.
Then multiply out. Eighty enquiries at £250 is £20,000 of media spend to produce twenty customers worth £128,000 in gross profit. That’s the argument you take to your board, and it’s a far better one than “the industry average is 6%”.
One warning about that sum. The media spend is usually the smallest part of the budget. The rest goes on the people who run it, the website those enquiries land on, and the content that makes the ads work in the first place. If you only budget for the ads, you’ll spend a year sending traffic to a page that doesn’t convert and conclude that advertising doesn’t work for your sector.
How I’d split it
This is my own rule of thumb rather than anything official, and it moves about depending on the business.
Roughly half goes on capturing demand that already exists: search advertising, the website, making sure people who are looking for you can find you and get in touch easily. It’s the least exciting half and it pays back fastest.
Around a third goes on creating demand: content, video, email, social, the work that means people have heard of you before they need you. Slower, and it’s what stops you renting every customer from Google forever.
The rest is test budget. Money you’ve decided in advance you’re willing to lose in order to find out something useful. Businesses that don’t have this line never learn anything new, because every pound is already committed to something that worked last year.
The thing that decides whether any of it works
Measurement, and I’d fix it before I spent another penny.
When I started with the Royal Armouries shop, the first job was conversion tracking that wasn’t recording sales properly. Every budget decision before that point had been made on incomplete data. With the tracking sorted, the following year showed return on ad spend up 141% on Google Ads and 246% on Meta. The budget didn’t have to double to do it.
Broken tracking is the most common problem I find in an audit, and it’s usually a day’s work. I’ve written up the checks worth running on your own advertising if you want to look before you ask anyone.
Someone has to hold the whole budget
The other thing that decides whether the money works is whether one person is responsible for all of it.
Where the web company controls one pot, a freelancer controls another and somebody internal does social, everyone reports a good month while enquiries stay flat. Nobody is doing a bad job. The gap is above them, and I’ve written more about how marketing ends up as a pile of bits.
At Rucklidge Law I own the strategy and the whole budget across Google Ads, the website, quarterly video, social and email. That means money moves to whatever is working this quarter instead of sitting where it was allocated in January. Their website brings in 30 to 50 qualified leads a month.
Three things to do this week
Get every marketing cost onto one page, annualised. Agencies, ad spend, software, freelancers, print, the sponsorship you renewed without thinking. Most businesses find something they’d forgotten they were paying for.
Work out what a customer is worth over the whole relationship. Ask your finance person. Without that figure, every budget conversation you have is opinion.
Write down what you’d need next year in customers, not pounds. Then do the four-step sum above and see what number falls out. Compare it to what you’re spending now. The gap is usually the conversation worth having.
If you’d like someone to do that maths with you and tell you honestly whether the plan stacks up, book a free consultation. And if you want to see what these budgets have produced elsewhere first, the results are here.