How much should a small business spend on advertising?

Why "a percentage of revenue" is the wrong starting point

Rules of thumb such as "spend 5 to 10 percent of revenue" describe what other businesses did, not what your next customer costs. A percentage produces a budget that is unrelated to your offer, your margin, or your sales capacity, and it gives you no way to know whether the money worked.

Ad spend is a purchase. You are buying enquiries, orders, or bookings at a unit price. Budget it like any other purchase: decide how many you need, find out what one costs, and check the arithmetic against your margin.

The four-step method we use

• Name the result. One number per campaign: qualified enquiries, orders, bookings, or sign-ups. Reach and followers are not results.
• Estimate what you can afford per result. Take the gross margin on an average sale and the share of enquiries that become sales; the ceiling is what you can pay for one enquiry and still make money.
• Test with tracking in place. Run four to eight weeks with conversion tracking installed before launch, so every dinar or riyal of spend reports what it produced.
• Scale what returns, cut what does not. Move budget toward the campaigns, audiences, and platforms with the lowest proven cost per result. Increase the total only when the cost holds.

An illustrative example

The numbers below are made up to show the arithmetic; your own will come from your test.

A clinic needs 20 new patient enquiries a month. The average first visit is worth BHD 60 in gross margin, and one in four enquiries books. The most it can pay per enquiry and break even on the first visit is BHD 15. If a four-week test on Google Ads produces enquiries at BHD 9 each, the campaign is profitable at the first visit, and a budget of BHD 180 to BHD 300 a month of spend buys the target. If the test comes back at BHD 25, the problem is the offer, the landing page, or the channel, not the size of the budget, and spending more would only lose more.

Fee and spend are two different lines

Whatever you budget, keep the management fee and the platform spend separate on the invoice and in the report. If they are blended, you cannot see the real cost per result. When paid advertising is bought on its own from us, the fee is a percentage of spend and is itemised; inside our packages, USD 600 or USD 1,200 of spend is part of the published price.

Traps that waste small budgets

• Boosting posts for reach. Cheap impressions against no objective. In one engagement we deliberately paid 109 percent more per thousand impressions and halved the cost of a click that led somewhere.
• Launching without conversion tracking, then judging by likes.
• Splitting a small budget across five platforms. One platform, one objective, enough budget to learn.
• Changing the campaign every few days before it has data.
• Judging the campaign when the problem is the offer or the landing page.