How to set a marketing budget for a new business

A marketing budget for a new business answers three questions: how many customers you need in the first months, what you will pay to reach them, and how long you can keep paying before sales cover the cost. Established companies often set marketing as a share of revenue. A business that has not sold anything yet has no revenue to take a share of, so the budget has to start from the customers you need instead.

This guide shows how to build that budget line by line. The worked example uses a fictional home cleaning service with invented amounts in USD. The figures demonstrate the arithmetic only. They are neither current advertising prices nor a recommended spending level for your market.

Start from the number of customers you need

Write down how many paying customers the business needs in its first three months to stay on plan. Take the figure from your own break-even or cash plan, and avoid round numbers chosen because they sound ambitious. If you have not worked this out yet, estimate your monthly costs first and divide by the profit you keep from one customer.

Then work backwards through the steps a customer takes before paying. For a local service that might be: sees the business, visits the website or profile, asks for a quote, accepts the quote. Assign a planning rate to each step and label every rate as an assumption until you have your own data. If you expect one in four quote requests to become a customer and need eight customers, you need 32 quote requests.

Separate launch costs from monthly costs

Split every marketing item into two groups. One-time costs are paid once around launch: a logo, the first batch of photographs, printed leaflets, a sign on the van. Recurring costs come back every month or year: advertising, scheduling tools, directory listings, a newsletter service.

Record the payment date for each item. An annual directory subscription paid upfront hits your bank account in one month even if you spread it across twelve in the plan. Keep your own hours in a separate column. Posting on social media yourself costs time and no invoice. Count it, but do not add it to the cash figures.

Put a cap on paid tests before the first sale

Before you know which channel brings customers, any paid advertising is a test. Decide the maximum you will spend on tests before the first sale and write it down as a fixed amount. This cap belongs inside your risk budget, the money you can afford to lose without closing the business.

Give each test a stop rule before it starts. For example: 'If 150 in search ads brings no quote requests within four weeks, stop and change the offer or the channel.' A rule written in advance is easier to follow than a decision made while watching money leave the account. Run one or two tests at a time so you can tell which one produced a result.

Worked example for a home cleaning service

The fictional owner needs 8 paying customers in the first three months. The planning assumption is that one in four quote requests turns into a customer, so the target is 32 quote requests.

The one-time items total 250 + 120 = 370. The recurring items for three months total 60 + 90 = 150, because the full annual directory fee is paid in the first month. Adding the capped test gives 370 + 150 + 300 = 820.

The cost per planned customer is 820 / 8 = 102.50. That figure only makes sense when compared with what one customer brings in. If a regular client pays for a fortnightly clean and leaves the business 40 of profit per visit, two visits a month over three months bring 6 × 40 = 240. On these invented numbers, the first customers pay back their share of the budget within the quarter, as long as they stay.

The owner also spends five hours a week on posts and replies. That time is recorded separately and does not change the 820 in planned cash.

Check what the budget does to your runway

Marketing money comes out of the same account as rent, insurance and equipment. Add the recurring marketing costs to your monthly burn and recalculate how many months the business can run before income arrives.

In the example, suppose the other monthly costs are 1,400 and the owner has 7,000 set aside after the launch purchases. Without marketing, the money lasts 7,000 / 1,400 = 5 months. With marketing, the first month costs 1,400 + 250 + 120 + 20 + 90 + 100 = 1,980, assuming a third of the ad test lands in each month. The next two months cost 1,400 + 20 + 100 = 1,520 each. After three months, 7,000 - 1,980 - 1,520 - 1,520 = 1,980 remains, enough for a little over one more month at 1,400.

That shorter runway is the real price of the marketing plan. It tells you how soon the first sale has to arrive. If the plan leaves less than one month of costs after the test period, cut the test or delay optional items rather than hoping the ads work faster.

Choose low-cost channels first

For many local services, the first customers come from people who already know the owner, from a free business profile on maps and review sites, and from direct contact such as leaflets or calls to past clients. These channels cost mostly time. Use them before you spend on ads, and record where each quote request came from.

Ask every new enquiry how they found you and keep the answer in the same sheet as the budget. After a few weeks, you will have your own conversion rates to replace the assumptions. That is the moment to decide whether a paid channel deserves more money, based on your data instead of general advice.

Review the budget every month

Once a month, compare three figures: planned marketing cash, actual marketing cash and the number of quote requests and customers per channel. Update the conversion assumptions with what really happened. Move money away from anything that has passed its stop rule.

Look at the runway until the first sale at the same review. If sales arrive later than planned, the marketing budget is usually the easiest cost to pause, because leaflets and ads can stop in a day while rent cannot. Decide in advance which items you would pause first.

Complete this marketing budget sheet

Copy these fields into a spreadsheet before you spend anything:

• Customers needed in the first three months and where that number comes from.
• Steps from first contact to payment, with an assumed rate for each.
• One-time marketing items with amounts and payment dates.
• Recurring marketing items, with monthly and annual payments shown separately.
• Test cap for paid channels and a written stop rule for each test.
• Owner hours per week, kept outside the cash total.
• Monthly burn with and without marketing, and the resulting runway.
• Source of every enquiry, filled in as they arrive.

Check the totals twice: once by adding the items and once by adding the monthly cash flows. They should match. Your next step is to fill in the sheet with real quotes for each item and the cash you actually have, then decide the test cap before you pay for the first ad.

Related glossary terms

• One-time costs
• Recurring costs
• Monthly burn
• Risk budget
• First sale
• First sale runway

See also

• Can I afford to start a business?
• Startup cost calculator
• Startup costs for a cleaning business