Set a stable marketing floor, release extra spend only from genuine cash surplus, separate proven channels from tests and protect delivery during uneven months.
Short answer: Set a monthly marketing floor you could pay in your weakest normal month, then release extra money only from cleared cash remaining after direct costs, tax reserves, an indicative eight weeks of committed expenses and your operating cash floor.
Lengthen that expense horizon when your payment cycle, delivery risk or revenue gaps require it. Put 70 per cent of the flexible amount into a channel already producing profitable customers and no more than 30 per cent into one test, then recalculate monthly and cap spending at the customers you can fulfil.
A flat percentage of revenue looks disciplined, but volatile revenue makes it dangerous. This month's large receipt may fund work delivered next month, replace stock already used or include tax that is not yours to spend.
Cutting marketing to zero in every quiet month creates another problem. Activity stops just when you need the next pipeline. The answer is a protected minimum plus conditional spending, not a percentage copied from a steadier business.
Use the Floor-Flex-Test Budget
The Floor-Flex-Test Budget separates continuity from expansion and learning. Each part has a different funding rule.
- Floor: Purpose: Maintain the one route that keeps demand visible; Funding rule: Affordable in the weakest normal month; Stop condition: The route no longer reaches suitable buyers
- Flex: Purpose: Add repetitions to a proven profitable route; Funding rule: Released from cleared surplus cash; Stop condition: Capacity fills or acquisition exceeds allowance
- Test: Purpose: Learn whether one new idea deserves funding; Funding rule: Maximum 30 per cent of flex; Stop condition: The stated hypothesis fails or loss cap is reached
The floor is not a collection of subscriptions and habits you cannot explain. It is the minimum cash and founder time required to keep the chosen acquisition mechanism operating properly.
My view is that an early business with volatile revenue should not set marketing as a fixed percentage of sales. Percentage advocates reasonably value simplicity and proportional control. The method works better when margins, payment timing and fulfilment are stable. When they are not, cash surplus and contribution provide a safer funding base than headline revenue.
Build the floor from the weakest normal month
Review at least the months you have, separating an exceptional closure or launch spike from normal trading. Identify the weakest month the business should be able to survive repeatedly.
Choose the smallest marketing activity that preserves access to suitable buyers. It could fund a regular partner visit, a defined outreach batch, essential local presence or continued publication at a lower frequency. Include founder time, because an activity requiring 20 unpaid hours is not a £0 channel.
The floor must fit after direct fulfilment costs, fixed commitments, appropriate tax set-asides and the founder's minimum required drawings or pay. Tax treatment and personal remuneration vary by structure and jurisdiction, so use current records and qualified advice rather than a generic percentage.
If no floor is affordable in the weakest normal month, the business needs more cash reserve, a cheaper channel or stronger unit economics. Calling the spend essential does not create the money.
Calculate flex from cleared surplus, not a forecast
At the monthly review, begin with cleared business cash and near-certain receipts due before the planned spending. Deduct:
- direct cost required for committed work;
- current tax and statutory reserves based on qualified advice;
- an indicative eight weeks of payroll, premises and other fixed commitments;
- an operating floor for delay, refund or rework exposure;
- already committed marketing contracts.
Eight weeks is a cautious starting horizon, not a market benchmark. Replace it with enough time to cover your own longest normal gap between committed spending and cleared customer cash.
The result is available surplus, not the flex budget. Release only a defined share because the rest protects uncertainty and other investments. Twenty per cent is a cautious working rule for a young business, not a universal benchmark.
flex allowance = positive available surplus × chosen release rate
When available surplus is £0 or negative, flex is £0. Do not make the formula produce spending by ignoring a liability.
Split expansion from learning
Put 70 per cent of flex behind the channel with evidence of profitable first sales. Increase meaningful repetitions, not merely the bid, frequency or production quality a channel happens to request.
Place no more than 30 per cent into one bounded test. State the audience, action, duration, maximum loss and decision in advance. Do not divide a small test budget across four ideas, where none receives enough exposure to teach you anything.
This 70:30 division is a management rule, not a claim that it optimises every business. If no channel has produced profitable customers, there is no proven band. Keep the entire amount within one carefully designed test or return it to cash until the offer is ready.
Include the cost of interpreting and following up results. Paid enquiries requiring two days of founder calls consume budget even when the media invoice is small.
Put capacity above the budget formula
Marketing spend should stop when delivery capacity is likely to fill at the intended service standard. Calculate available units and contribution before adding demand.
If you can fulfil six more jobs, a campaign designed to create 30 is not ambitious. It is a refund, lateness and reputation risk. You can promote later dates or a different profitable offer, but do not take money for capacity that does not exist.
Variable businesses also need to distinguish demand seasonality from cash timing. A quiet bank month may follow a busy delivery month because customers pay later. A cash forecast reveals that difference. Do not react to the current balance without looking at committed work and receipts.
Worked example: Beacon Linen Hire
Beacon Linen Hire supplies table linen to events around Exeter. It can sustain a £240 monthly marketing floor during its weakest normal trading month. The floor covers a small, repeatable programme with venues and planners.
At the end of a strong month, cleared cash and near-certain receipts total £13,600. The owner deducts £5,100 of direct cost for booked events, a £1,500 tax reserve established with an accountant, £4,200 of eight-week fixed commitments and a £1,400 operating floor.
- Cleared cash and near-certain receipts: £13,600
- Direct costs, tax, commitments and floor: £5,100 + £1,500 + £4,200 + £1,400 = £12,200
- Available surplus: £1,400
- Flex at 20 per cent: £1,400 × 20% = £280
- Total marketing budget: £240 floor + £280 flex = £520
Beacon allocates 70 per cent of flex, or £196, to the proven venue route. The remaining 30 per cent, or £84, funds one planner test.
In a later month, available surplus falls to £650. Flex becomes £650 × 20% = £130, and total marketing is £370. The floor remains stable, while optional spending falls by £150. These figures are illustrative. Beacon must change the release rate if its working-capital exposure or capacity changes.
Review contribution, not whether the budget was spent
At month end, compare each band with suitable enquiries, customers, first-sale contribution, repeat contribution supported by evidence and founder time. Unspent money is not failure. It remains cash until a justified activity needs it.
Do not reward a team or supplier for using the allocation. That encourages weak spending near the deadline. Judge whether the floor maintained demand, flex produced additional profitable capacity and the test answered its question.
If a proven channel weakens, move it back into test status. Historical performance does not grant permanent access to the flex band.
Related guides
Set next month's budget in 90 minutes
Calculate the weakest-month floor and write the single activity it protects. Update cleared cash, committed direct costs, tax reserve, your chosen committed-expense horizon and operating floor. Release a chosen share of positive surplus, then split flex 70:30 between one proven channel and one test. Check capacity before authorising either. Put the figures and stopping decisions into your monthly cash review, and repeat the calculation on the same date next month rather than changing it whenever the bank balance creates anxiety.
Frequently asked questions
Should I base the budget on forecast revenue or cash received?
Base immediate spending on cleared cash and highly reliable near-term receipts, while using the forecast to see upcoming commitments and shortages. A signed contract may support planning but still pay late. Cash already received may also belong to future fulfilment or tax. Reconcile both views before releasing flex.
Do not spend against a hopeful sales forecast merely because the campaign could produce more revenue. Payment terms, deposits and revenue recognition differ by business and jurisdiction, so use accurate records and ask a qualified accountant how particular receipts and liabilities should be treated.
What if I have no history for a weakest month?
Set the floor from available cash runway and the smallest complete channel activity, then treat it as provisional. Build a 13-week cash forecast with realistic receipts, direct costs, fixed commitments and an operating floor. Choose an amount the business can pay even if no new sale arrives during the first test period.
Review it every four weeks until trading shows a normal low month. Do not use another company's revenue percentage as a substitute for your missing evidence. A new business may need a very small floor while the founder uses direct selling to learn cheaply.
Can unused marketing budget roll into the next month?
Yes, but it returns to general cash first. Re-authorise it through the next monthly calculation rather than treating it as money marketing must eventually consume. The following month may have different tax, stock, payroll or refund exposure.
If the same useful activity was delayed, fund it when capacity and cash still support it. Keep the original test loss separate so postponement does not quietly double the amount. Rolling cash forward is prudent. Rolling an unquestioned entitlement forward can produce a large spend disconnected from current economics.
Should founder time be included in the budget?
Yes. Give it a realistic hourly allowance and record it in the band using those hours. Otherwise labour-intensive channels appear free and cash-heavy channels look unfairly expensive. The allowance need not equal your eventual wage, but it should reflect the value of time displaced from delivery, sales or rest.
Compare results both before and after founder time if cash is tight, so you can see short-term survival and long-term viability. Tax and accounting records may treat owner labour differently from this management calculation. Ask a qualified professional about formal reporting.
Should I borrow money for marketing during a quiet month?
Usually not unless a channel has stable, evidenced payback and the business can repay the borrowing if results fall below plan. Debt converts a marketing uncertainty into a fixed cash obligation. Calculate contribution, timing of customer receipts, interest, fees and the affordable loss under a weak result.
Do not borrow to continue a campaign whose economics are unknown or to protect an arbitrary monthly percentage. Finance suitability, security and tax treatment depend on your circumstances and jurisdiction. Obtain regulated or qualified financial advice before committing to business borrowing.
What if marketing creates more demand than I can fulfil?
Reduce or pause acquisition before service quality fails. State accurate future availability, prioritise profitable work under fair existing terms and avoid taking deposits for capacity you cannot honour. Calculate whether temporary labour, subcontracting or additional stock preserves contribution and standards before expanding.
Do not assume every extra order deserves acceptance. If excess demand repeats, the next investment may be capacity rather than marketing. Employment, subcontracting, consumer and cancellation requirements vary by sector and country, so obtain qualified local advice before changing fulfilment arrangements or customer terms.
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