Marketing Budget: How Much to Spend, and Should You Spend More When Sales Drop?

Should you increase your marketing budget when sales drop?

Sometimes yes, and sometimes it is the worst decision you will make this month

One number separates these cases. It is called the extra customer cost and we will get to it shortly

Sales are a lagging number. They are the result of what happened in the market and what you did weeks ago. The decision needs two numbers from the present, how much demand there is now and what it costs to reach it now

Why most people spend at the wrong time

Let us see this in Majed's year

Majed sells perfume online with an average order of 50 dollars. In the ad economics guide we found that the most he can pay in ads for one order is 15.22 dollars, because that is what is left of an order after cost, shipping, payment and returns

In a normal month he spends 3,000 dollars on ads and gets 330 new orders, plus about 270 orders from customers who come back on their own

His budget rule is the most common one. Spend 10% of last month's sales

The red line rises after sales rise and falls after they fall. Majed's highest budgets came in March and April after the February peak, and in December after the November peak

That made him get it wrong twice in the same year

In April he spent heavily while demand was gone

March was the Eid month with 40,500 dollars in sales, so the rule gave him 4,050 dollars for April. But demand for perfume after Eid dropped 20%

In October he stopped spending while ads were cheap

In October there was talk of a recession, several competitors paused their ads and the cost per thousand impressions fell 20%, so every dollar bought 25% more reach

Majed's sales dropped only 5% but he got scared and cut ads from 3,000 to 1,500 dollars. The best spend that month was 3,730

Each of the 172 orders that never came would have cost him only 12.97 dollars, under his ceiling. He lost 388 dollars of ad profit and 172 new customers, some of whom would have come back and bought without ads

That explains what you see in the market. People spend when sales are good because the rule gives them more money and cash in the bank makes the decision easy. Then they stop when sales drop because ads are the easiest line to cut

What research says about marketing in a recession

Business schools have studied this question for a hundred years. The answer is not always spend more as some write, nor cut it first as most people do

The most important part of the 4,700 company study is who won. The researchers sorted companies into four groups

Companies that spent hard without controlling costs were not the best. The winners cut waste by running operations better and invested in marketing and development at the same time. Target, for example, raised marketing and sales spending 20% in the 2000 recession, and its sales grew 40% and profits 50%

Why do ads get cheaper in a crisis?

Because most competitors cut at the same time, so the same money buys you a bigger share of all the ads in your category. That share is called share of voice (your share of all ads in your category)

Les Binet and Peter Field found in data from thousands of campaigns that brands whose share of voice is higher than their market share tend to grow, and every 10 points of excess is linked to about 0.5% market share growth, according to the American Marketing Association

But the research set conditions

Raji Srinivasan, Arvind Rangaswamy and Gary Lilien surveyed more than 150 marketing executives after the 2001 recession and found, according to Penn State, that going on the offensive in a recession pays off for companies with three things

1. Marketing that worked before the crisis, a proven way to turn spend into customers
2. A team that moves and tests instead of waiting
3. Spare cash, a team with free time or unused capacity

Companies without these resources wait until conditions improve

In the Journal of Marketing, Srinivasan, Lilien and Sridhar analyzed more than 10,000 firm years of US company data across 7 recessions. The effect of advertising changed with market share, debt and type of business, and many consumer service companies overspent

In a study of media plans Nielsen found that 25% of channel spend was above the level that gives the best return, by a median of 32%

Why did your sales drop? Four causes and a decision for each

Before any budget decision, find where the drop came from, because each cause calls for a completely different decision

There is a fifth cause we see often. Sales did not drop at all, measurement changed, such as a broken tracking tag or a campaign counting orders in a new way. Before you decide, check the number itself, as we do in our measurement and attribution service

Is the drop seasonal?

Compare the month with the same month last year, not with the month before it. If it is 30% below last month but similar to the same month last year, this is a season, not a problem

In our Ramadan demand case study the days of Ramadan were 17% to 44% below normal every year. That was not weakness, demand had arrived weeks earlier

How much can you pay for one customer?

Every budget decision rests on this number, and most business owners we meet do not know it

What you keep from a sale is the price after tax, product or service cost, shipping, payment and returns. We worked it out step by step in the pricing and unit economics guide

Majed counts only the first order because his cash is limited and he does not want to wait a year to earn back what he paid, so his ceiling is 15.22. If he counted half his customers buying again within a year, his ceiling would rise to 22.83

Choosing between the two numbers is a cash decision, not a marketing decision. If you have cash to wait, count only the repeat purchases you have actually seen in your sales records, not the ones you expect

If you sell through leads, like a services company, multiply the ceiling by your close rate to find the most you can pay per lead. With a ceiling of 600 and 1 in 10 leads buying, the most you can pay per lead is 60

How much more? Judge by the extra customer, not the average

This number is what separated April from October for Majed

The average fools you, because the first customers come cheap from people closest to buying and every dollar after them reaches people further away

In April Majed's average was 12.81 dollars per order, which looks well under his ceiling, but the orders that came from the extra spend cost 18.37 each

We use a rough rule that holds in most small and midsize accounts. Doubling the budget in the same conditions adds about 50% more customers, not 100%. We saw it in the ad economics guide when Majed doubled his budget and orders went from 120 to about 175. In the calculator you can pick 30% if your market is small, or 70% if your market is large and your share of it is small

Seven rules before any increase

1. Know the cause before the number. If the problem is yours, extra ads send more people to the same closed door
2. Do not buy demand that is gone. If search in the market fell, the increase pays more for the same few people
3. Judge by the extra customer, not the month's average
4. Do not spend payroll money. We do not raise spend when cash covers less than 3 months of fixed costs
5. Never go dark. Keep a floor that covers people searching your name, visitors who did not buy and your current customers
6. Increase in steps of 20% to 30% and measure for two weeks before the next one
7. Write the stop point before you start, the extra customer cost that sends you one step back

How to build a marketing budget step by step

Do you start with the sales goal, the growth goal or the marketing budget?

You start with the profit you want, then the sales goal that delivers it, then you ask whether the market has room for that goal, then you work out what a customer costs at that volume. The budget comes out at the end

Marketing textbooks call this the objective and task method, a budget built from the goal and the work it takes. It is the opposite of what most people do when they start from the bank balance or a share of last year's sales

If you do not have a clear profit goal, start from the sales target that covers your fixed costs and gives you a profit you accept. The calculation is in the free template

Majed's goal for next year

Majed wanted monthly sales to grow from 30,000 to 40,000 dollars, which is 800 orders. 270 of them come from returning customers, so 530 orders must come from ads instead of 330

That needs 6,608 dollars of ads a month at an average of 12.47 per order. That looks fine, but the last orders cost 20.78 each, above his 15.22 ceiling

So Majed changed the numbers that come before ads

• He raised the average order from 50 to 55 dollars with bundles and gifts, so he needs only 727 orders
• He raised repeat orders from 270 to 400 with messages to past customers before each season

Now he needs 327 new orders and an ad budget of 2,959 dollars, and the last order costs 15.07, under his ceiling. Add 1,200 dollars for a designer and tools and the full marketing budget is 4,159 dollars, 10.4% of sales

The same goal with less than half the first budget. The difference came from pricing and current customers, not from ads

The same method for any business

In the ad economics guide Sara, who runs a services company, needed 90 leads to reach 6 contracts, more than she could afford. When she raised her close rate from 2 to 3 in every 30 by replying the same day, the goal became profitable with only 60 leads. In the media buying guide Khaled found the clinics his goal needed in a niche newsletter at a lower cost than Google

What does a marketing budget cover?

A marketing budget is not only an ad budget. It covers ads, people, tools and content, and inside paid media we split it into three parts

What percentage of revenue should go to marketing?

According to the Gartner 2026 CMO Spend Survey marketing budgets were 7.8% of company revenue, up from 7.7% in 2025, with most respondents in North America and Europe. In The CMO Survey for 2026 the average was 9% and the median 5%

Use these numbers to see where you stand, not to set your budget. A large company has returning customers and a known brand, so it needs a lower share than a two year old business, and a percentage does not tell you whether the last dollar is profitable

A business that wants to grow faster than its market usually spends a higher share in its early years. The right question is not whether your share is high but whether every extra customer costs less than your ceiling

A yearly budget that leads demand, not one that follows it

Customers decide before they buy and search before they decide. If you show up only at the moment of purchase, you compete for the last step against everyone who showed up earlier

In our Ramadan demand case study for a client in the services sector, demand started moving 7 to 9 weeks before Ramadan, peaked 5 to 8 weeks before it, then dropped during Ramadan itself. We moved the plan to spend about 70% of the season budget before it started

1. Plot two years of weekly sales and mark every season such as Ramadan, the two Eids, National Day, White Friday and back to school
2. Find when the rise starts, not when it peaks
3. Start spending before the rise by the time your customer needs to decide
4. Ease off on days people are busy even if those days are the season in everyone's words

Where does the budget go in a marketing plan?

The budget section of any marketing plan should answer five questions before it states a total

• What is the sales goal and how many new customers does it need
• What is the customer cost ceiling
• What is the floor we never go below
• How much we spend each month by expected demand, not in equal parts
• What is the stop point for each campaign

The 12 month plan tab in the free template spreads your budget by demand and compares it with a share of last month's sales

What to do if your sales are dropping now

This is the plan we follow when a business comes to us with falling sales asking whether to spend more or stop

Free marketing budget template on Google Sheets

Everything in this guide in one file with Majed's numbers. Clear them and type yours. Every cell explains where to find the number

Open the link and it will ask you to copy the file to your account, then type only in the blue cells

FAQ