How to create marketing budget for your business
One of the most common questions small business owners ask is: “How do I create a marketing budget and how much should I be spending?” It is a reasonable question, and one that deserves a more considered answer than a simple percentage. Because the truth is, a marketing budget is not just a number you pick. It is a strategic decision, and when done properly, it is rooted in understanding what it costs you to win a customer, and what that customer is actually worth to your business over time.
This guide will walk you through the key concepts and give you a practical framework for building a marketing budget that works for your business.
Start With the Benchmarks – But Do Not Stop There
The most widely cited rule of thumb is that businesses should allocate 7–10% of revenue to marketing. According to Gartner’s 2025 CMO Spend Survey, the average across industries sits at 7.7% of company revenue. However, that figure is skewed by large enterprises with established brand awareness and loyal customer bases.
For small businesses, the picture looks quite different. Businesses turning over less than £5 million typically need to invest between 7–8% of gross revenue as a baseline, while newer or faster-growing businesses often need to push that figure to 15–20% simply to build awareness and establish themselves in a competitive market.
What Is Cost Per Acquisition (CPA)?
Your Cost Per Acquisition, sometimes called Customer Acquisition Cost (CAC), is simply the total amount you spend on marketing and sales divided by the number of new customers you acquire in a given period.
Formula: CPA = Total Marketing Spend ÷ Number of New Customers
For example, if you spend £2,000 on marketing in a month and gain 20 new customers, your CPA is £100.
Knowing your CPA tells you how efficiently your marketing is working. A lower CPA means you are acquiring customers cost-effectively. A rising CPA is an early warning sign that your marketing needs reviewing. It is worth noting that acquisition costs have been rising across industries (research shows CAC has increased by around 60% over the past five years) making it more important than ever to track and manage this figure carefully.
What Is Customer Lifetime Value (CLV)?
Customer Lifetime Value is the total revenue (or profit) you can expect to generate from a single customer over the entire course of your relationship with them. It is arguably the most important number in your marketing strategy, because it reframes what you can afford to spend to acquire a customer.
Basic Formula: CLV = Average Order Value × Purchase Frequency × Average Customer Lifespan
For example, if a customer at your salon spends £60 per visit, comes in six times a year, and stays a client for three years, their CLV is £1,080. That changes the conversation around what it is reasonable to spend to win them in the first place.
This is where many small businesses get their thinking backwards. They set a marketing budget based on what feels affordable in the short term, without considering the long-term value of each customer they are trying to attract. When you factor in CLV, you gain a much clearer picture of what a new customer is truly worth, and therefore how aggressively you can afford to market.
The LTV:CAC Ratio – Your Most Important Budget Metric
The relationship between these two numbers (your Customer Lifetime Value and your Cost Per Acquisition) is one of the most powerful indicators of whether your marketing is sustainable and scalable.
The widely accepted benchmark is a 3:1 ratio. For every £1 you spend acquiring a customer, that customer should generate at least £3 in lifetime value. According to Shopify’s research, this is considered the minimum viable threshold for most business models.
- Below 2:1 – Your acquisition spend is likely unsustainable and needs urgent review
- 3:1 – A healthy, sustainable position for most businesses
- 4:1 or above – You have strong unit economics, and may even be under-investing in growth
Let us put this into practice. If your average customer has a CLV of £600, a healthy CPA would be up to £200. That means you have a clear ceiling for what you can spend to acquire each customer across all your marketing channels combined.
Building Your Budget: A Practical Framework
With your CPA and CLV established, you can build a budget from the bottom up rather than plucking a percentage from thin air.
Step 1: Set your growth target. How many new customers do you need to acquire this month, quarter, or year?
Step 2: Multiply by your target CPA. If you need 30 new customers per month and your target CPA is £80, your minimum monthly marketing spend is £2,400.
Step 3: Sense-check against your revenue. Does that figure fall within a reasonable percentage of your revenue? If it feels high, you have three levers: reduce the number of customers you are targeting, work to improve your conversion rate (so your CPA falls), or look at whether your pricing and CLV can be improved.
Step 4: Allocate across channels. A practical starting framework for small businesses is to put the majority of your budget into proven, measurable channels (paid search, social advertising, email marketing) while keeping a portion for content, traditional media and SEO, which builds long-term organic traffic and lowers your blended CPA over time.
A Note on New vs. Established Businesses
If you are just starting out, expect your CAC to be higher and your LTV:CAC ratio to be less favourable than these benchmarks suggest. That is normal. You are paying a premium for brand awareness, and your conversion rates will improve as your reputation grows. This is why newer businesses typically need to invest a higher percentage of revenue in marketing (often 15–20%) before the economics settle into a more comfortable range.
The goal is to treat marketing not as an overhead, but as an investment with a measurable return. When you know your CPA and your CLV, every pound you spend becomes a calculated decision rather than a leap of faith.
Final Thoughts – So, how do I create a marketing budget?
There is no universal marketing budget that works for every business. But there is a universal principle: spend based on what you know a customer is worth, not based on what you feel you can spare. Understand your Cost Per Acquisition, know your Customer Lifetime Value, and aim for that 3:1 ratio as your benchmark for a healthy, growing business.
If you are unsure where to start, a marketing audit is often the most effective first step – it gives you a clear picture of where your money is currently going and where the real opportunities lie.
Want help building a marketing budget that is grounded in your actual numbers? Get in touch and let’s talk.
Hi, I’m Emilie
I’m a strategic marketing consultant with experience across fitness, hospitality, retail, events and more – helping small businesses build strategies that deliver real results.
Let’s chat further to discuss your requirements and business goals.