How much should my small business marketing budget be?

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Marketing budgets are one of the most debated topics in the business world.

Everyone wants to know how much they should spend, particularly small business owners.

It’s only natural, after all, you rely on a good marketing strategy to help promote your business and bring in customers.

So, you’re willing to spend a fair bit, but there’s always a balance between spending enough to have a positive impact and spending too much to the point where you make a loss.

Obviously, the main topic of discussion is how much should your small business marketing budget be?

As a general rule, companies with revenue under $5 million should allocate roughly 7-8% of their revenue to marketing.

This isn’t set in stone, but it’s a good guideline to show how much other people are spending.

If you’re worried about your marketing budget, then it’s all right!

Everything is going to be fine, and we’ve put together a guide to help you take a strategic approach to things.

Follow this advice, and you will understand how to create a budget that suits your business needs and goals.

Understand Your Target Customers

Putting together a small business marketing budget begins with your customers.

More specifically; WHO are your target customers?!

pinning down target customer on sticky note

It’s impossible to put together an effective marketing strategy if you don’t understand everything there is to know about the people buying from you.

So, the first step is getting to know your target audience.

Here, you should work on creating a customer avatar that tells you everything you need to know about your dream customer.

It will look at the following main points:

  • Who are they? (Age, gender, location, occupation, etc.)
  • Why do they want to buy? (Aspirations, challenges, lifestyle, etc.)
  • Where are they? (what websites do they use, etc.)

By conducting your research using a combination of analytics, interviews, focus groups, and surveys, you will create a customer persona.

Now, it provides insight into how you can attack things from a marketing perspective.

You will see what methods of marketing work best for your target audience, so your focus can be on them.

Mostly, the aim of understanding your customers is to prevent yourself from spreading your marketing efforts too thin.

You don’t have to invest in every single technique out there; only the ones that will target your customers.

Split Your Budget Into Two Sections

A small business marketing budget should ideally be spread across two different sections.

These are brand development costs and the costs of promoting your business.

Brand Development Costs

Here, you’re spending money on everything that will help build and promote your brand.

We’re talking social media, SEO, your website, blogs, and so on.

A strong brand provides your marketing strategy with strong foundations.

Just look at companies like Apple and McDonald’s; neither of which really do anything too different from their competitors, but they’ve worked tirelessly on promoting their brands, which is why they have so much success.

Costs Of Promoting Your Business

This refers to everything you spend money on to directly promote your company.

For example, advertising, specific campaigns, and special events.

Every business needs these promotional ideas as it allows you to push your business out there and get in the public eye.

Many small business owners make the mistake of only focusing on one of these two sections.

In reality, your budget has to be split between the two.

It doesn’t need to be an even split, and we’ll discuss some of the best ways to spend your money later on.

Think About Revenue Margins

We said in the introduction that the general rule is to set aside 7-8% of your revenue if you’re generating under $5 million.

It’s essential that you understand this refers to your overall income for the year, not your final profits.

This figure is given with the assumption you’ve also got revenue margins of 10-12% after expenses – including your marketing budget.

So, if you’re generating $5m in revenue, but your margins are much less than this, then you have to rethink things.

Many people assume this means lowering your marketing budget, but what you should do is try to reduce your expenses to widen these profit margins.

Cut out some money here and there, which you can then dedicate to your small business marketing budget.

It’s not ideal, but think about it this way; with a well-funded marketing strategy, you can bring in more customers, create more leads, and make more sales.

As a result, your revenue will hopefully increase so you can afford to invest a bit more back into your business after.

Leverage Different Channels

One of the worst mistakes you can make is spending all of your marketing budget on just one or two channels.

For example, everything gets spent on online advertising or influencer marketing.

If you restrict yourself to a couple of channels, the chances of failure are greater.

Remember, your small business marketing budget is an investment, so treat it like any other one!

You should diversify and spread the money across various channels.

marketers hard at work across different channels

For example, invest in your website, SEO, email marketing, social media, and so on.

When there’s money going into different things, it won’t be too catastrophic if you see slow results from one channel.

Your email marketing might not be firing on all cylinders, but it’s okay because your SEO and website are generating leads like crazy.

Having said that, there’s a point where you have to say enough is enough.

Don’t invest your budget in everything you might find as this will just spread your resources too thin.

In essence, go back to the first point about knowing your customers; they’ll help you figure out how to best diversify your spending.

Utilize Cost-Effective Solutions

You will get more from your marketing budget if you use the most cost-effective solutions out there.

There are so many marketing ideas and tools that cost little-to-no-money at all.

But, they’re highly useful as they enhance your strategy without forcing you to break the bank.

Here are a few ideas you should really think about using:

Building A Strong Website

Having a solid website is pretty much integral to your marketing strategy.

It’s the center of your online presence; where everyone goes to make a purchase or learn about your business.

There are so many cheap solutions to help you build a professional and responsive site – like WordPress.

Anyone can set up a WordPress site in a few days, and you can pick and choose how it looks and functions, saving thousands of dollars on web design.

Now, you have a place to drive traffic towards.

Search Engine Optimization (SEO)

We can’t discuss your marketing budget without touching on SEO.

Along with your website, this helps build an online presence and get your brand out there.

The great thing is, because SEO deals with organic and not paid searches, there are so many free tools you can use.

Google has a keyword research tool that helps you pinpoint the best keywords to use in your content, allowing you to rank better in your main searches.

Then, there are tools like SEO Minion, which you can use for free to check the health of your SEO and identify the weak points.

The bottom line is that you can save so much money by using these free or cheap SEO tools – and they all provide stellar results.

Email Marketing

Again, it’s so easy to set up an email marketing strategy without spending loads of money.

Tools like MailChimp are cost-effective ways of setting up a mailing list and sending out numerous emails to your target market.

It’s such an effective way of generating leads and converting them into sales.

If you invest in cost-effective ideas like these, then you don’t have to spend as much money on the more expensive ideas like paid ads and social media.

Yes, they will help your campaign, but you limit how much you need to spend.

Big businesses don’t really have to worry about this as they have the money to invest heavily in whatever they want.

But for a small business, the smart approach is to use all the free software out there.

Summary: How Much Should My Small Business Marketing Budget Be?

To summarize everything, your small business market budget will probably vary depending on your business and the industry you’re in.

Manufacturing businesses tend to spend as little as 0.7% of their revenue on marketing every year.

On the other end of the scale, retail companies can invest up to 20% of their income.

But, if you want to follow the general rule, then it’s 7-8% of annual revenue (if you’re generating less than $5m) provided you have revenue margins of 10-12%.

Many of you may look at this and think it’s impossible to create a budget that roughly aligns with it.

In which case, use the advice above to help construct your small business marketing budget.

Focus on the customers first, and this helps point you toward the best channels to use.

Bring costs down elsewhere in your business, meaning you have fewer expenses and can spend the extra money on marketing.

Finally, ensure you use all the most cost-effective channels to save cash and avoid blowing your budget on other things.