How much should a small business spend on ads?

Start with what a customer is worth

Before you set a budget, know what a new customer brings in. For a one-off sale, that's the profit on the order. For subscriptions and repeat business, it's the profit over the time customers typically stay.

That figure is the most you could pay to win a customer and still break even. You'll want to pay a good deal less, but it sets the ceiling.

Decide how fast you need the money back

Some businesses can wait a year to earn back what they spent winning a customer. Most small businesses can't. Decide how many months you're comfortable waiting, and that tells you how hard you can push.

Spend enough for the platforms to learn

Ad platforms learn who to show your ads to from the results they get. Spend too little and there isn't enough data for them, or you, to learn from: the numbers jump around and nothing settles. Budget for a steady handful of results every week, not one every so often.

Treat the first few weeks as learning

Early results are usually the weakest you'll see, because the first weeks are spent finding which audiences and messages work. Judge a channel on its trend after a few weeks, not on day three.

Scale with your results

When ads are winning customers for less than they're worth, spend more, in steps, and watch what each new customer costs. When that cost climbs above what you can afford, hold or pull back.

Count the costs around the ads

Ad spend is only part of the cost. Add the work to make new ads, the tools, and any agency or service fees, and compare the total with the profit the new customers bring.