Managing Your Business

How To Build a Marketing Budget That's Fit For Your Small Business

How To Build a Marketing Budget That's Fit For Your Small Business

Here’s one universal truth about small business owners: They have a lot on their to-do list. But of all the things you know you have to do, there’s one thing that consistently falls to the bottom of the list—building a marketing budget that fits your unique business and strategy. In fact, according to the U.S. Small Business Administration, small businesses are the biggest culprit when it comes to not budgeting enough for a strong marketing strategy—or anything at all.

Here’s another universal truth for small business owners: Setting a smart marketing budget is integral to your long-term success. After all, how else are customers going to know you exist if you don’t have a plan in place to get the word out? Whether you are an online business, a small mom and pop shop, or just getting started, marketing is essential to increasing sales, increasing awareness, and, ultimately, building a powerful brand. Without a custom-tailored marketing budget, you could overspend and mess up your broader business budget, or underspend and deprive yourself of the exposure you need to establish and grow your business.

Have you bumped the creating a marketing budget task to the top of your to-do list yet? Here’s everything you need to know to get started.

Follow The Leader: Here’s What Other Industries Spend On Marketing Budgets

Before you start aimlessly scrutinizing over numbers, consider this: Thousands of businesses spanning hundreds of industries have already built out their marketing budgets. That’s great news for small business owners because it gives you dozens of benchmarks to model your own budget off of. In other words, you don’t have to start from scratch. Instead, you can follow the lead of these top industries. According toa study that surveyed more than 300 Chief Marketing Officers, here’s how some of the top industries allocate their marketing budgets:

Industry: Average percentage of revenue spent on marketing: Consumer packaged goods 24% Consumer services 15% Tech Software / Biotech 15%  Communications / Media 13% Service Consulting 13% Education 11%  Healthcare / Pharmaceuticals 10% Retail Wholesale 10%  Banking / Finance / Insurance 8% Transportation 8%  Manufacturing 8% Energy 4%

Base Your Marketing Budget On Your Gross Revenue

While there is no true one-size-fits-all approach to building the perfect marketing budget, there are a few general guidelines you can follow to land on a number that works for your business.

Determining the right number to allocate actually depends on several factors, including your industry sector, your business capacity, the amount of growth you can handle, and how quickly you need to make an impact. For example, during the early brand-building years, some businesses may look to spend up to 20% of revenue on marketing to quickly establish themselves in the marketplace.

If you’re still scratching your head, The Small Business Administration recommends spending 7% to 8% of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales. Note that the 7–8% rule assumes that your business will have revenue margins of 10–12% after expenses, which will include your marketing budget.

While it might seem slow to start, there is a long-term benefit to this approach: Your small business marketing budget will rise along with your sales. Keep in mind, however, that marketing generates sales. That means a small business needs to budget a disproportionate percentage for marketing compared to its sales—which can seem intimidating.  

How to Allocate Your Marketing Budget

Once you’ve estimated your annual marketing budget, the next step is deciding which avenues are most deserving of your money. This is where things can get tricky. Your marketing budget is like a pizza, and each of your strategies is hungry for a slice. Each guest might easily consume the entire pizza if you let them, but you want to make sure each gets a fair share.

According to research from eMarketer, in 2018, the average firm was expected to allocate 42% of their marketing budget to digital, and this rate is expected to grow to 45% by 2020. This can include things like:

  • Search Ads like Google Ads

  • Social Ads, including Facebook Ads, Instagram Ads, and LinkedIn Ads

  • Content marketing

  • Social media marketing, including Facebook, Twitter, Instagram, Pinterest, LinkedIn, Reddit, and more

  • Email marketing

  • SEO and on-site marketing

Here’s an example of how your budget and strategy can work together in real life. Say your new business focuses on gourmet ice cream. You have gross revenue of $100k per year. Your goal is to use Google Ads to catch the interest of potential consumers; Facebook Ads to reach users interested in other ice cream brands to drive awareness; email marketing to nurture those warm leads; and SEO and on-site marketing to stay top-of-mind.

This business opts to allocate 8% of its total budget to marketing since it’s in growth mode—that gives you $8,000 to spend. You put $250 per month towards Google Ads and $250 towards Facebook Ads to reach new audiences and retarget engaged ones.

A lot of email marketing software lets you choose from pricing models that work for your needs, so you don’t get locked into overpriced enterprise plans. Companies like MailChimp, for example, give you access to all the essentials for $10 a month. You opt for this package, which takes up $120 of your budget.

After those avenues are locked in, you don’t have a ton of money to handle the SEO marketing. Fortunately, to save money, you can use free services like Google Keyword Planner to research highly-searched words and phrases in the ice cream industry. You’ll just need a place to house your fresh new content. After checking out tons of options, you land on a content management system designed for brick and mortar locations. At $20 a month, it gives you full access to powerful SEO features. Remaining funds can go to physical marketing materials, like signage, posters, flyers or stickers.

Are You Ready To Build A Marketing Budget For Your Small Business?

While there are a lot of rules, suggestions, and guidelines out there, remember that no two businesses are the same. That’s why there’s no true cookie-cutter formula for developing or spending your marketing budget. If you’re still feeling stuck, start simple with your goals. Keep your audience in mind. And remember that there are countless platforms, channels, and marketing techniques that you can try—regardless of the size of your budget. 

Originally published on October 28, 2022, and last edited on October 28, 2022.

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