How Much Should a Small Business Budget for Marketing

Marketing and Sales: What Is the Difference Between Them

Some small businesses want to think sales and marketing are two separate things. They think they should be separated like church and state. However, this is the wrong way of thinking. Sales and marketing need to work hand in hand. Marketing’s job is to help attract the prospects, start the engagement, then help keep them happy after the initial sale to sell to them again! Sales job is to look at the prospects, give feedback to marketing, take the engagement handoff, close the deal, then, along with marketing, continue to foster long-term relationships with the client.

Hers’ the bottom line: you don’t need to spend more on sales than you do on your marketing, nor should you spend more on marketing than sales, as they should be one and the same.

How Much Should You Budget for Advertising and Marketing?

When setting your small business budget for advertising and marketing, the numbers vary. There are a lot of factors that determine how much you should invest of your yearly budget to get new clients. Below are what experts have to say:

U.S. Small Business Administration Recommendation

In the past, the Small Business Administration of the United States has suggested, “small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing.”

Using the SBA numbers, if your net profit is $500,000, you should be spending $40,000 on your marketing.

But let’s use more realistic numbers for many small businesses:

• If your net profit is $250,000 per year, at an 8% investment, you should be spending $20,000 per year.
• If your net profit is $100,000 per year, at an 8% investment, you should be spending $8,000 per year.
• If your net profit is $50,000 per year, at an 8% investment, you should be spending $4,000 per year.

What Others Have to Say

• According to Deloitte’s February 2021 CMO Survey, marketing expenses are approximately 11.7 percent of overall company-wide spending as of February 2021.
• Gartner’s 2020 CMO survey says most marketing budgets are around 11% of the total company budget.
• Web Strategies says, “Marketing budget as a percent of total revenue can vary dramatically by industry. While the B2C product sector devotes an average of 13.7% of revenue to marketing budgets, the B2B product sector reports a much lower 6.7% of revenue dedicated to marketing spend.”
• BDC says, “A common rule of thumb is: B2B companies should spend between 2 and 5% of their revenue on marketing.” They go on to say B2C should spend between 5 and 10% because these companies “need to invest in more marketing channels to reach various customer segments.”

Average Percentage of Total Budget Dedicated to Marketing by Industry

Given the above, let's dive into some specific industries:

• Education: 20%
• Construction/Trades/Service Area Businesses: 13%
• Technology and Software Platforms: 12%
• Healthcare: 7%

Recommend Average Percentage of Total Budget Dedicated to Marketing by Business Age

First Year Business: 25-35%

Starting your business is going to be hard. You are going to need more marketing capital to get your name out there. While money will be tight, you need to think of your marketing as an investment. An investment in your business and what you can do!

Established and Growing Business: 12-18%

These are the types of businesses we usually see in years 2-10. You have your name out there, but you know there is more of the market you can take advantage of. You want to take the momentum and run with it!

Well Established Business: 3-5%

These are typically the businesses that have been around 10+ years and have a well-established name and reputation. However, you have an up-and-coming business closing in on your heels.

Declining Business: 6-10+%

Again, these are typically the businesses that have been around for years, they have a well-established name and reputation, but someone else has come in and is “stealing your lunch money.” However, you have an up-and-coming business closing in on your heels.

Bottom Line: Your Spending Will Depend on Your Revenues, Market, and Target Audience

Every business needs marketing to attract clients, generate sales, and compete more effectively.

Unfortunately, there is no one-size-fits-all answer; BDC Business Advisor Jessica Horvath says, “So much depends on the kind of business you have, your business objectives, and revenue.”

How to Develop Your Marketing Budget in 4 Steps

Determining the right marketing budget is difficult for businesses, especially small ones. Therefore you have to maintain a healthy balance of revenue to costs while still investing in resources to help market and grow. Below are the four steps you should take to develop your marketing budget.

Step 1: Start by Researching Your Industry

I touched on this above, but you need to determine what others in your industry are spending on their marketing. You can do this by:

• Asking others in your industry
• Reach to traditional advertising outlets and see if businesses like yours are using them, but be sure to find out their rates and prices.
• Utilize free SEO Tools such as Google Searches, Google Trends, Moz, and SpyFu, to help you determine your digital competitors.

Step 2: Consider All Your Potential Outlets

When it comes to marketing and advertising, there are numerous avenues you can take. Below are the categories many small businesses use:

Digital Marketing

Digital marketing includes your website, blogging, geo-landing pages, email newsletters, pay-per-click (PPC) ads, social media, and online video. Here is a breakdown of each individually:

Website: This includes the initial design and development, yearly hosting, updates, and maintenance.

Blogging: This can help your small business build trust with potential clients and provide an extra level of customer service for your existing ones. It is also an important tool for generating new content for SEO and social media.

Geo-landing Pages: If you are a local small business, you should have a good number of pages focusing on a service you offer and a location in your service area.

E-newsletters: Sending regular updates to clients who opted to receive communications from your small business keeps your name at the forefront of their minds and encourages repeat business.

PPC Ads: This digital marketing tool allows small businesses to get their ads shown on search engine results pages (SERPs). It is “paid” because you, the small business, pays money to the search engine’s owner (Google, Bing, etc.) for the service and each individual ad click.

Social Media: Hannah KilpatrickHannah Kilpatrick says, “social media can have a significant impact when it comes to promoting a small business. It helps to foster a positive link with your clients. It allows local businesses to compete with larger enterprises.” For most small businesses, we recommend focusing on “organic social media” instead of paid social media ads.

Video: Every small business should consider adding video to their marketing efforts. Costs can range from hiring a cameraperson and editor to simply upgrading your smartphone so you can record the video yourself.

Traditional Media

While digital advertising is usually more cost-effective, traditional advertising such as radio, print, and television still have value depending on who you’re trying to reach. As a small business, you should consider your resources and how you can make the most of your budget.

Step 3: Create a Marketing Strategy

You’ve done your research and looked at your potential outlets, so now it’s time to look at your overall marketing strategy. This will help you understand exactly what you need to spend and where to spend it to get the return on investment (ROI) you want. If you later discover your ideal marketing strategy is out of your price range, that’s fine. Marketing is a flexible expense, so just because you can’t afford to spend as much right now doesn’t imply you won’t be able to invest more later.

Goals

Your marketing strategy will be multifaceted; therefore, you need to set goals. Your goals are the outcomes you want from your marketing efforts. While all marketing aims to generate sales, you want to be more specific.

Examples of marketing goals may be

• Increase brand awareness
• Drive traffic to your website
• Increase engagement rates on social media posts
• Establish greater authority in industry and area
• Generate higher-quality leads

Target Audience

Your target audience or buyer persona are the people you want to market to and believe are your ideal clients. To accomplish this, you must conduct market research: Call your current clients and ask them what they like about your small business. Gather demographic information and learn which platforms people use to find your business.

Distribution Method

The channels through which you market your small business are your distribution methods or distribution channels. In other words, how will you get the word out about it?

Track Return on Investment (ROI)

Measure your spending and the current effectiveness of all your activities. Tools such as HubSpot can help small businesses with sales, marketing, and customer support tools, as well as a free CRM. Additionally, tools such as Google Analytics and call tracking can help as well.

Step 4: Set a Budget

Every small business must invest in marketing in order to grow. And now is the time to determine how much you can spend to grow.

Another way to think about your budget is to structure it in reference to the revenue growth you want to achieve via your marketing efforts.

Sample Budget Focused on Digital Marketing

For this example, let’s assume you are in the established and growing business category, and you decide you really need to push your marketing as “Chuck in a Truck” is nipping at your heels. You determine you can invest 20% of your profits or $20,000 over the next year. We will also assume you DIY’d your website, and you know you need something better to compete with your competitors.

With an investment of $20,000, a small agency such as Cube Creative Design could do the following for you:

• Design and develop a new website for your small business
• Host and perform all updates and maintenance on the site for you
• Help you write and optimize your existing website content while adding new.
• Develop a 12-month content plan
• Ensure the website is search engine optimized
• Create and post geo-landing pages and blogs
• Optimize and help you monitor your Google Business Listing
• Help you solicit reviews with our reputation management software.
• Post on social media for you
• Manage Google Ads (PPC Ads) for you
• Provide monthly reporting

Where to Find Free Marketing Budget Templates

Do you need help developing a marketing budget for your small business? Try one of the following free marketing budget templates:

• Smartsheet has 12 free marketing budget templates, including a Simple and Annual Marketing Budget.
• SCORE has an Annual Marketing Budget Template, and you can also get free help either online or at the SCORE chapter near you.
• HubSpot has eight free marketing budget templates.

Key Takeaways and Final Thoughts

The adage that you have to spend money to make money rings true regarding your marketing. However, when times get tough, as in a recession, marketing budgets get cut first as they are often seen as non-essential costs.

Therefore if you take anything away from your article, know these three things:

1. Marketing is an investment in the future growth of your small business.
2. Determine how much you can invest, and then invest wisely.
3. Track everything!

If you need digital marketing help, reach out to me! Cube Creative Design and I are here to help!

Sources:

• Mad Men Sales Meeting
• Mad Men Creative Meeting