How much should a small business in Canada spend on marketing?

Most small businesses in Canada should plan their marketing budget from the number of new customers they need, not from a percentage picked out of the air. Work out what one new customer is worth to you, decide what you can afford to pay to win one, multiply by the customers you want this year, and that is your small business marketing budget. Then sanity-check it against the common rule of thumb of a single-digit percentage of revenue.

In practice, a local service business that wants steady enquiries from Google or Meta usually ends up spending at least $1,000 a month on ads, plus whatever it pays someone to run them. Below is how to get to your own number, step by step.

Why "5 to 10 percent of revenue" is only a starting point

You will often hear that small businesses should spend somewhere between 5 and 10 percent of revenue on marketing. It is a reasonable sanity check, and nothing more. It ignores three things that matter a lot:

• Your stage. A new business with no reviews and no search rankings has to buy attention. An established one with a full referral pipeline may need very little.
• Your margin. A dental clinic and a convenience store with the same revenue can afford very different costs per customer.
• Your capacity. If you are booked for six weeks, more marketing just creates a waiting list. Spend on systems instead, or raise prices.

So use the percentage to spot something unusual, like spending 25 percent of revenue with no growth, not to set the budget itself.

Step by step: the customer-based budget

Here is the method I use with clients during an audit. You need four numbers, and rough ones are fine.

1. Average first sale. What does a new customer pay on their first job or order?
2. Gross margin. What share of that is left after materials and direct labour?
3. Repeat value. Do customers come back? If so, what are they worth over two or three years? My article on customer lifetime value shows how to estimate this without fancy software.
4. Target number of new customers. Per month or per year, based on your capacity.

From there: the maximum you can pay to win one customer is a share of the profit that customer brings. That figure is your target customer acquisition cost. Multiply it by the number of new customers you want, and you have the marketing budget that makes sense for your business.

A worked example

Take a house-cleaning company. The numbers below are illustrative, not a client's.

Fifteen customers at $120 each gives a monthly marketing budget of about $1,800. That covers, for example, around $1,000 in Google Ads spend and management from $750 a month. If the campaigns bring customers at $90 instead of $120, the owner can raise the budget with confidence. If they come in at $200, something needs fixing before more money goes in.

How to split the budget between channels

Once you have a total, divide it by where your customers already are, not by what is fashionable.

• Urgent local services (plumbing, locksmiths, appliance repair): most of the budget goes to Google Ads and Google Maps, because people search at the moment of need.
• Visual or impulse purchases (bakeries, beauty, home decor): Meta ads on Facebook and Instagram often carry more weight.
• Considered purchases (renovations, real estate, legal services): a mix of search ads, SEO and follow-up through email or a CRM, since the decision takes weeks.

I would rather see one channel funded properly than four channels with a few hundred dollars each. If you are torn between search and social, my comparison of Facebook ads and Google Ads covers that choice, and my pricing page for advertising shows what management of each costs.

The fixed costs people forget

A budget is not only ad spend. Plan for these, too:

• The website or landing page. If it does not convert, every ad dollar works harder than it should. A landing page with me starts at $1,300, a full business website at $3,000.
• Tracking. Without proper analytics, you are guessing. Setting up GA4, Tag Manager and pixels costs $650 with me and is the cheapest insurance in marketing.
• Your own time. Answering enquiries quickly, asking for reviews, approving copy. This costs nothing in dollars and a lot in hours.
• Seasonal swings. Many Canadian businesses have a slow winter or a dead August. Budget by month, not as a flat annual amount divided by twelve.

What to do if the budget is small

If you can only spend a few hundred dollars a month, do not spread it thin across ads. Put it into things that keep working without a monthly fee: a clear website, a complete Google Business Profile, a system for collecting reviews and a simple way to ask happy customers for referrals. When cash flow allows about $1,000 a month for ads, start one channel and measure it from day one.

If you have a decent budget and are unsure how to divide it, a structured marketing budget plan is one of the things I build as part of strategy work. It turns the guesswork above into a month-by-month plan with targets you can check.

Review it every quarter

A marketing budget is not set once a year and forgotten. Every three months, look at cost per lead, cost per customer and revenue from new customers. Move money towards what works, cut what does not, and adjust for the season ahead. The businesses that grow steadily are rarely the ones that spend the most; they are the ones that look at the numbers and react.

A simple quarterly review takes about an hour. Pull three figures for each channel: what you spent, how many enquiries came in, and how many of those became paying customers. Divide spend by customers and compare the result with the target you set at the start. Anything well above target gets a closer look before the next quarter, and anything well below it is a candidate for more budget. Write the decisions down, so that three months later you can see whether they worked.