How do I set a realistic marketing budget?
Building the number from the target
Start at the end. Say you want 40 additional bookings a month. If your sales team closes one in eight qualified leads, that is 320 leads, and if your landing page then converts at three percent, you need somewhere in the region of 10,000 relevant visits to feed it. Apply a realistic cost per click for your category, and you now have a media number.
Add production on top of that. Creative, content, landing pages, video. Add your tools. Add agency or salary costs. That total is your budget, and it is often an uncomfortable one, which is precisely the point of running the exercise rather than reaching for a round figure.
If the number comes out impossible, something upstream has to change. Improve the conversion rate, raise average order value, close better, or lower the target. Those are the options. Wishing the cost per click down is not one of them.
Checking what you can afford
Now run the second calculation: contribution margin per sale, times the number of sales, set honestly against the budget, and if spending 8 lakh to generate 40 bookings at 15,000 contribution each works, then proceed. If it does not, you have found out cheaply.
Include the unglamorous costs. Returns, RTO, refunds, the discount you will end up giving, the leads sales never get around to calling. Budgets built on gross revenue instead of contribution look perfectly fine on a spreadsheet and lose money in practice, which is exactly how companies manage to grow steadily and quietly toward insolvency.
And separate the two phases. Testing money buys information. Expect it to perform poorly. Scaling money buys volume on the things you have already proven out. Mix the two into one number and both end up looking bad.
Splitting it sensibly
Roughly speaking: the majority into channels you already know work, a meaningful share into content and organic search that pay back later, and a small slice held aside for testing something new. Ratios vary by stage. A brand with no organic presence should tilt harder toward content than one already sitting on an established site.
Review it quarterly, not annually. Costs move, channels shift, and an annual budget set in April is usually wrong by August anyway, so keep a decent portion of it unallocated and be ready to respond the moment something actually starts working.
Related questions: Why are my impressions high but clicks low? · How do I track which marketing actually drives revenue? · Is SEO still worth it in the age of AI search?.
Want this handled: Digital marketing · All answers.
Work backwards from the revenue you want, through your actual conversion rates, to the traffic or leads required. That gives you a number grounded in your own business rather than someone else's. Then check it against your margin to see whether you can actually afford it. Percentage-of-revenue rules borrowed from articles are a sanity check at best, never the method.
The commonly quoted bands come from companies with very different margins and growth stages to yours, so use them only to sanity check a number you have already built up from your own funnel. If the two land far apart, trust your own arithmetic.
Proportionally more, and expect worse efficiency while you do it, because that early spend is really buying information about which products, audiences and messages actually work. Budget for the learning period explicitly, rather than treating it later as underperformance.
Ready to replace guesswork with a growth engine?
Book a 30-minute strategy call. We’ll show you exactly where your funnel is leaking, before you spend a dollar.