This is Part 1 of a two part discussion.

How much should a small business spend on marketing? As a small business marketing consultant, I get this question a lot.

While, at first, this might seem like a complex question — or one that has different answers depending on the business or industry, the answer really is pretty simple.

A small business should spend the least amount possible in order to achieve their profitability target for the year.

The key to looking at marketing spend is to think like an accountant, not a marketer or small business owner.

An accountant might look at various key metrics for your business:

• Revenue per customer
• Customer acquisition cost
• Profit per customer

You can utilize these metrics to determine how much you should spend on marketing. The guiding principle (which seems obvious) is don’t spend more to acquire a customer than you make from that customer.

Here’s an example. We’ll simplify things a bit.

Let’s say you own a kitchen remodeling business. You get all your business from referrals, so you don’t really spend anything on marketing. The problem is that for the past three or four years, your business has been flat — averaging between 70 and 80 customers per year.

You look back at your records and saw that last year you had 75 customers and total revenue of $425K. That works out to an average revenue per customer of $5,667 — which makes sense to you, since most of the jobs that you do are in the $5K-$6K range.

When all is said and done, you net about $2,000 per job after expenses (materials, labor, etc.).

So — if you never had to pay a penny to acquire a customer (zero customer acquisition cost), you’d make around $2,000 profit per customer.

But… you are not happy with just 75 customers. You know that some of your competitors have 100-150 jobs per year.

You realize that you need to implement a marketing program in order to acquire new customers. Your goal is to acquire 25 incremental customers over the next year — at an average job size of $5,600. This works out to additional revenue of $140K. But how much is it going to cost you to get these customers?

Since you make an average of $2,000 per customer, you know that you can spend some amount less than $2,000 per customer. But how much less?

We’ll answer that question in Part 2 of this post. Stay tuned.