Best-in-class MSPs spend roughly 11% to 12% of topline revenue on sales and marketing combined. That figure covers everything: website, CRM, design, salaries and commissions, outsourced help, printing and ad spend. On a $1 million business at 50% gross margin, that is about $110,000 a year inside a $300,000 SG&A line, leaving roughly 20% net profit. Best-in-class acquisition cost runs around $27,500 per client. The right number for you depends on what a client is actually worth to you in sales and profit, which is the only correct way to set a marketing budget.
This is a REALLY common question that comes in on new-client questionnaires from the IT services companies we serve: what should I spend on marketing?
I can tell you from 20+ years of experience in working with MSPs, hardly anything is being spent on marketing, with all growth coming from referrals. Because of this, there is a swath of gross ignorance on the subject and a horribly inaccurate expectation around what an IT services company should invest in marketing in relation to their goals.
So, let's get some accurate thinking around this, shall we?
What Percentage Of Revenue Should An MSP Spend On Marketing?
First off, a general "best practice" rule of thumb for MSPs is that they should be spending roughly 11% to 12% of TOPLINE revenue on sales and marketing combined.
That 11% would encompass everything, including a website, CRM software, graphic design and the salaries and commissions of your salespeople and marketing team. It would also include any outsourced help, printing and, of course, media costs (ad spend).
Sales and marketing costs should go into a classification called SG&A, or "sales and general admin." It's a "below-the-line" cost and is not calculated into COGS, or cost of goods sold. And because it's not necessary to spend money on sales and marketing to service a customer or keep the lights on, this is the first budget line item starved.
So, if you were generating a million topline and net 50% gross margin, it would look something like this:
| Line | Amount |
|---|---|
| Topline Revenue | $1,000,000 |
| COGS | $500,000 |
| Gross Margin | $500,000 (50%) |
| SG&A | $300,000 (30%, of which 11% is sales and marketing, or $110,000) |
| Net Profit | $200,000 (20% of topline) |
The other costs that go into SG&A are all the costs that aren't DIRECTLY attributed to service delivery, such as rent for your office, utilities, legal and accounting fees, insurance, consulting fees, office supplies and Internet. The owner's salary should also be in SG&A, although if you are spending a good portion of your time in service delivery, some of your salary would be allocated to COGS.
Now that I've given you the best-in-class standard formula, let me give you a more nuanced way of looking at this.
What If I Want To Grow Faster Than That?
In some cases, you might need or want to spend more than 11%.
The other day I received this question from a brand-new MSP member who was generating just shy of a million dollars in revenue: "I want to double sales this year. Last year I only spent about $1,500 on marketing for our website, which isn't producing any results to date. The rest has been e-mail and social media and, of course, referrals. I'm upping the budget a bit and wanted to know where you think I should best invest this money?"
So, this member's stated goal is to DOUBLE sales to $2 million, yet he says he's only interested in upping the budget "a bit" from the $1,500 he's spending.
Let's say we triple his budget, which is more than "a bit," and we get him to spend $4,500. Doubling his business, adding $1 million, is wholly unrealistic and unreasonable on that paltry spend, UNLESS you have some unusual "ace" up your sleeve, like a strategic partnership with another company that has a big list and is willing to walk you into new accounts, or a referral source that gives you endless business.
This "no investment" or thin investment approach to business growth is like expecting a farm to produce a crop without an investment in seeds, fertilizer, irrigation and weed control. Acquiring customers COSTS MONEY.
When I ask most IT business owners, "You DO realize that client acquisition costs money?" they'll laugh a little bit and say, "Of course!"
Then I'll ask them to show me the budget they have for marketing. In practically every case, there is NO SET BUDGET for marketing or sales, with every dollar accounted for. They are just randomly spending money on random acts, and even then, it's not enough. All this is proof positive they don't truly understand that an MSP must invest in marketing to get clients.
Technically you could grow a business entirely by word of mouth, but it is the rare company that can survive on referrals alone or achieve the speed of growth most MSPs and IT businesses want. In this case, he wants to DOUBLE his business in a year. Given that it took him eight to nine years to get to the million-dollar mark with practically ZERO investment in marketing, he's going to have to ramp that up considerably.
So, before you start dreaming of a bigger bank account, start planning on a bigger marketing budget AND a bigger TIME investment in marketing.
What Does It Cost To Acquire An MSP Client?
According to Service Leadership, best-in-class MSPs spend north of $27,500 to acquire a client. That is a fully loaded expenditure calculated by adding up all of their sales and marketing costs for the year and dividing it by the number of clients they acquired in that same time period.
I don't know if that shocks you and causes you to recoil in fear, thinking you don't have "that kind of money" to get a customer. If it does, I completely understand.
I was once in your shoes, starting a business with change I found in the sofa cushions, piles of debt and not enough money to even get a website done. So what did I do?
First, I leaned heavily on warm outreach to old clients, prospects and people I knew, asking for referrals and to uncover if I could be of assistance to them. My first and most critical marketing investment was a CRM and e-mail broadcasting service. I was a wizard with ACT! software back when dinosaurs roamed the earth. That secured me a few clients with no other marketing involved. Just sales outreach.
Next, I found a web-design company that was willing to barter my services for a very basic website. But the strategy that got me the most clients at the least cost was JVs, or strategic partnerships. I'm actually really great at that approach.
Point is, it's ENTIRELY possible to get new clients without spending a lot of money on marketing. However, it does require YOU to pick up the phone and work your connections to find opportunities.
To be clear, when I had no money and couldn't hire people to do this for me, I spent no less than four to five hours a day prospecting and selling, calling and e-mailing people I knew and their referrals, as well as reaching out to companies to look for a JV opportunity.
Once the money started coming in, I made sure I invested right back into the company's marketing, adding on direct mail, PPC, sponsoring events and hiring salespeople. At the time, I spent more than 11%. I wanted to grow, so I plowed back 20% of topline, taking less income, so I could get up to sufficient clients and growth.
Back then, this was easier to do because I didn't have all the overhead I have today. Another mistake many small MSPs make is thinking it's easier to make more profit when you're bigger. It's not. It's much easier to generate higher net profit from a small business that doesn't have to pay for a building, health insurance and a management team.
What Should I Spend Money On First?
I always start with marketing and sales initiatives that are the easiest and least expensive, but at some point, you need to start investing money. Here's what I would spend my money on FIRST if I had a limited budget:
- A productive CRM or marketing automation platform to build and maintain my list. Your list is your biggest asset. Treat it accordingly.
- Content help. If I was unable to write or produce good content, I would hire someone to do this for a blog, newsletter and social media so that as I build my list, I'm able to continually engage it with content to stay top of mind, further my authority positioning and help with SEO.
- A quality, high-converting website. This is the hub of all marketing, and the place all leads eventually end up. Don't be too cheap here, and the copy and offers are far more critical than the design, although design needs to facilitate conversion.
- LinkedIn Sales Navigator. It's a fantastic tool for prospecting.
- Attendance at key networking and trade show events, so that I could look not only for customers but also JV partners.
- SEO and someone to manage the basic posting of key social media platforms.
I would really double down on networking, JV partners and public speaking. Those things don't necessarily cost anything. I was able to get multiple JV partners to let me speak and write for their audience at no cost because I developed my speaking skills, which fed me for the first five years in business.
Then, as quickly as you can, hire a marketing admin at entry level to help you with all the detail work of database management, websites, blogs, social media and printing, and an SDR to help you follow up on inbound leads and referrals, as well as prospecting and list cleaning.
Can I Just Do Free Social Media Instead?
In my experience, the free or nearly free, online-only social media approach to marketing an IT services business is a fantasy.
ALL social media platforms and Google are pay-to-play. They have zero interest in promoting your business and posts for free. In fact, it's estimated that less than 1% of all your fans, followers or connections will see your organic free post.
That's why Gary V's recommendation was that you have to post 64 pieces of content on various platforms DAILY. Most of you don't produce that in a year. Personally, I don't think that's a good investment of time. A MUCH better approach would be to invest that time into networking and developing strategic JV partners, which are one-to-many lead sources.
Will you get SOME through free posting and organic content? Yes, and you should post at least four to five times a week so your profile doesn't look abandoned. But real traction on Google, Facebook, LinkedIn and YouTube will require financial investment of paid ads.
So How Do I Actually Set The Number?
With all of this said, the only correct way to determine your marketing budget is to first determine what a client is worth to you, in sales and profits, and from that, calculating what you can and are willing to INVEST to acquire that asset.
The reason you need a budget is to force you to be prudent with your spend, but that goes for anything in business. You should have a set budget for what you can afford to pay engineers, and no more. Same with the tools you use to deliver your services.
What I often find is that MSPs OVERSPEND in these areas and underfund marketing, putting themselves into a no-profit and no-growth situation.
How do you know if you're not budgeted in those areas? In general, if you're not making at least 50% in blended gross margin across all services, you're overspending in people or tools. (More on what a fully profitable client looks like.) I suppose you could also be charging too little, your techs could be underutilized, which is another form of overspending, or you're not billing clients correctly and you're doing work for free.
Manage Two Budgets, Not One
Next, you should be looking at marketing and sales as two "budgets" you manage.
One is for generic, non-ROI-based collateral you need. That would be business cards, your website (NOT the advertising dollars you invest in driving traffic with SEO or paid ads, which is a different cost), client thank-you cards and gifts.
The NEXT budget should be based purely on performance and is for driving measurable sales. Example: Google AdWords.
If you had a Google AdWords account that was delivering you $10,000 in MRR for every $1,000 invested, WHY on EARTH would you cap that? If you're smart, you'd invest as much as possible into that campaign because it was delivering a positive, measurable ROI, no different than if you owned a magic vending machine that spit out $100 bills for every $1 you put in.
How many dollars would you insert into that machine? Answer: as many as you could physically get your hands on.
The ONLY marketing you're "spending too much money on" is the marketing that's NOT generating a return. But even then, you need to really look carefully at why something is not generating an ROI. Often, it's the way the strategy is being applied, the list, the person making the calls, not the media itself.
If you want help setting a budget that matches what you actually want to grow, and making sure the money goes where it will produce, that is the work I do in one-on-one consulting.
Frequently Asked Questions
How much should an MSP spend on marketing?
Roughly 11% to 12% of topline revenue on sales and marketing combined. That covers everything: website, CRM software, graphic design, salaries and commissions for your sales and marketing people, outsourced help, printing and ad spend. On a $1 million business, that is about $110,000 a year. Most MSPs spend far less, which is the actual reason growth stalls.
What does it cost an MSP to acquire a new client?
According to Service Leadership, best-in-class MSPs spend north of $27,500 to acquire a client, fully loaded. Calculate your own by adding all sales and marketing costs for the year, including salaries and commissions, then dividing by the number of clients acquired in the same period. Most MSPs have never run this number, which is why their budgets are set by guesswork.
Where does marketing spend sit on an MSP's P&L?
In SG&A, sales and general admin, which is a below-the-line cost and is not part of COGS. Because it is not strictly necessary to spend on sales and marketing to service a customer or keep the lights on, this is the first line item most owners starve. SG&A also holds rent, utilities, legal and accounting, insurance, office supplies and generally the owner's salary.
What should a small MSP spend money on first?
In order: a CRM or marketing automation platform to build and maintain your list, content help if you cannot write it yourself, a quality high-converting website, LinkedIn Sales Navigator, attendance at networking and trade show events, and basic SEO and social posting. Alongside that, double down on networking, JV partners and public speaking, which cost little or nothing.
Can an MSP grow using only free social media?
No. The free or nearly free, online-only social media approach to marketing an IT services business is a fantasy. All social platforms and Google are pay-to-play, and it is estimated that fewer than 1% of your followers see an organic post. Post four to five times a week so your profile does not look abandoned, but expect real traction to require paid investment.
How do I know if my marketing budget is set correctly?
Start by determining what a client is worth to you in sales and profit, then calculate what you can and are willing to invest to acquire one. That is the only correct method. Also check your gross margin: if you are not making at least 50% blended gross margin across all services, you are overspending on people or tools, undercharging, or not billing correctly, and marketing is usually the line that gets starved as a result.
Am I spending too much on marketing?
The only marketing you are spending too much on is the marketing that is not generating a return. If a campaign delivers $10,000 in MRR for every $1,000 invested, capping it makes no sense. But when something is not producing, look carefully at why before you cut it. Often the problem is how the strategy is being applied, the quality of the list, or the person making the calls, rather than the media itself.