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Marketing Budget for Small Business

Marketing Budget for Small Business
Susan Guillory

Susan Guillory

Updated November 16, 2021
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If you’re starting a small business, one thing you may be struggling over is how much of your budget should be set aside for marketing. Where to spend limited funds can be a constant challenge for entrepreneurs, but money you spend on marketing can become one of your best investments if it turns into new customers.So how much should a small business spend on marketing? Many companies use a percentage of revenues as a guide (if you’re a startup, you can use your projected revenues). But there’s a wide range when it comes to what percentage to spend. One common rule of thumb is that 7 to 8 percent of gross revenue can be a good benchmark for small businesses. The right amount for your business, however, will depend on your revenues, market, the stage of your business, and who you need to reach. Below, we boil it all down and offer tips for coming up with a marketing budget that fits your small business.

Typical Small Business Marketing Budget

The August 2021 CMO Survey, sponsored by Deloitte, the American Marketing Association, and Duke University’s Fuqua School of Business, shows marketing spending overall, by industry, as follows: As you can see, companies selling products to customers (B2C) often invest more in marketing channels than those that sell directly to businesses (B2B) in order to reach various customer segments.The size of your business and growth state can also be important factors when determining your marketing budget. For example, if you’re just starting a small business and focused on brand building, you might spend as much as 20 percent of sales on marketing, a much larger percentage than established companies typically invest.Once your business is established, you may be able to reduce your marketing budget because you will have a steady customer base. However, that doesn’t mean you can stop marketing—you'll still most likely need to invest in attracting new customers and retaining existing ones as one of your growth strategies.

Why a Marketing Budget is Essential

Having a budget in general is one of the most important basics of small business accounting. And marketing is one of the most important investments you can make in your business. Having a marketing budget lets you understand how your marketing efforts are driving sales and profitability. Without a specific marketing budget in place, your spending might fluctuate from one month to the next, and you won’t be able to track your return on investment (ROI). You can calculate ROI using a simple formula:  For example, if you have a budget of $10,000 a month for marketing and those costs generate you $50,000 in new sales, then you know you had a 400% ROI. You can even break your budget down by type of marketing (social media, ads, content) and compare your ROI to get really granular about which strategies are working and which aren’t.

Different Marketing Strategies

Whether you’re creating a one-year marketing budget or crafting a 3-year business plan, you may want to consider a number of different marketing strategies for your business. These might include: 

Content Marketing

Today, marketing is often less about direct selling and more about educating people about your area of expertise. You can do that through your website and/or blog. By creating informative articles and videos, you can attract people who can enter your sales funnel and become customers.If you or someone on your team is an adept writer, you may not have to invest any money in this marketing strategy. If not, it can be a good idea to hire a business writer or marketing consultant to help.

Social Media

Another great way to attract customers is through social media marketing. Having active profiles on sites like Facebook, Twitter, Instagram, and LinkedIn (depending on your audience) can help you connect with people who otherwise might not find your brand.Again, if you have someone who can manage this, great. Otherwise, it could make sense to hire a social media consultant. You may also want to invest in software that allows you to post on multiple sites, which tends to be moderate in cost.

Advertising

It can be hard to stand out from the crowd, and that’s where advertising can really pay off. You have a variety of options, from targeted social media and search ads to television, radio, and print.

Email Marketing

Staying in front of existing customers is key, and email can help you get there. Sending regular newsletters or promotions can help to ensure they remember you when they’re ready to buy.You can hire a marketing consultant to write emails that convert, and can often get email marketing software for a small cost (some are even free).

What Are Some Marketing Expenses?

When putting together your marketing budget, here are some line items you may want to include. This can give you a more clear idea of the cost of starting a business, as well as what it will require to maintain it, since marketing isn’t a one-time cost.
  • Sales & marketing software (social media management, email marketing, CRM)
  • Marketing consultant (content, email, social media)
  • Video production
  • Podcast software and editing
  • Website design and management
  • Online advertising
  • Events
  • Customer gifts
  • Promotional items
  • In-store displays
  • Direct mail

Creating a Marketing Budget in 5 Steps

Putting together your marketing budget may seem daunting at first. One way to make it easier is to break the process down into a series of small, manageable steps.

Step 1: Setting Some Clear Goals

It can be important to start with clearly-defined goals so you can measure results as you market. For example, if you want to get more people to visit your website to take a specific action, you may also want to think about how many and over what period of time. Or, if your goal is to get more bodies into your store for a free sample, you may also want to consider what kind of customers you are hoping to attract and how many you want to come in.

Step 2: Considering Which Marketing Channels May Work Best

As you explore various marketing strategies (like the ones listed above), you may want to keep in mind that the channels that will be most effective will likely depend on who your target audience is, and where they are receptive to connecting with your brand. Baby Boomers might not be on Instagram, but they might be on Facebook.

Step 3: Listing Costs

Once you’ve identified the channels most relevant to your audience, you can then make a list of all necessary costs, including software and subscriptions, as well as the cost to hire a professional if needed. 

Step 4: Being Realistic with Your Budget

You may not be able to afford to do everything on your list, so a good next step might be to prioritize spending. Once you’ve settled on a set amount you want to spend on marketing each month, you can then consider what would pack the biggest punch with that budget. You may need to take on some tasks yourself, so consider how willing you are to do your own marketing. As you work through your marketing budget line by line, it will become clearer what you can afford, according to your priorities.As your business brings in more revenue, you can increase your budget accordingly.

Step 5: Measuring Your Return on Investment

Keeping an eye on your ROI for each strategy can let you know what’s working and what’s not. Tools such as Google Analytics and call tracking can help, but even simple spreadsheets or pen and paper can be very useful. If you find that one quarter was more profitable than another, you may want to take a closer look as to why. For anything that isn’t bringing in web traffic or sales after a few months, you may want to cut it from the budget and then redirect that money into strategies that are working. 

The Takeaway

Every business generally needs to do marketing to attract customers, increase sales and stand out from the competition. But a lot of small business owners struggle to know just how much money they should be spending. While 7 to 8 percent of gross revenue can be a useful rule of thumb, the best marketing budget for your venture will depend on the kind of business you have, the stage of your business, and your business objectives.Ready to take further steps to grow your business? You may want to consider a small business loan to help you move forward. With Lantern by SoFi, you can compare loan options for small businesses from multiple lenders without any type of commitment.
Photo credit: iStock/Anchiy
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.SOLC1021207

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
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