Why 'percent of turnover' is a lazy answer
You will read that businesses should spend 5 percent, or 10 percent, or 'whatever the competition does'. Those numbers come from surveys of very different companies with very different margins. A rule of thumb that ignores what a customer is worth to you is not a plan, it is a guess with a decimal point.
Quick answer
Start from the value of a customer and the number you need, not from a percentage of turnover. Most SMEs that are growing land between 5 and 12 percent of revenue, but the right figure comes from your margins.
Start from what a customer is worth
Work out the average profit a new customer brings over the time they stay with you. A joinery firm might make £1,500 profit on an average job and see a customer twice. A mortgage broker might make £900 per case with three cases over ten years. That lifetime profit sets the ceiling on what you can afford to spend to win one.
- Average profit per job or sale
- Average number of repeat purchases
- Lifetime profit per customer
- A sensible share of that you would give up to acquire them, often 20 to 30 percent
Then count backwards from the target
Decide how many new customers you need this year, multiply by what you will pay to win each one, and you have a budget with a reason behind it.
| Step | Example | |
|---|---|---|
| New customers needed | 40 a year | |
| Lifetime profit each | £3,000 | |
| Acceptable cost to acquire (25%) | £750 | |
| Annual marketing budget | £30,000, or £2,500 a month |
Where the money goes
A common split for an SME with a working website is roughly half on channels that bring demand now, such as paid search or social, a third on channels that compound, such as SEO and content, and the rest on the things that make everything else work: the website, tracking, design and email. Adjust as the numbers come in, not before.
The two mistakes we see most
Spending too little to find out anything, so nothing gets a fair test, and spending on too many things at once so nothing gets enough. Pick a budget you can hold for six months, put it behind two channels at most, and review it against enquiries every month.
If you are stuck or want a second pair of eyes on this, give us a shout. We are always up for a chat.
