How Much Money Should a Small Business Spend on Marketing?

EAG, August 17, 2020

Wow! What a loaded question “How much money should a small business spend on marketing?” has become. Marketing budgets are at the mercy of outside forces—events both under and beyond a business owner’s control. Worst case scenario is that the budget is slashed. Best is that the budget is reallocated to better performing channels based on marketing ROI and digital marketing analytics. With all the moving parts, how can you determine how much to spend on marketing?

If asking a small business marketing agency seems like asking a fox how many chickens to put in a coop, know that EAG Advertising & Marketing has worked with nearly 400 small businesses. We have seen what does and doesn’t work for small businesses and have the data to prove it.

Where are You in Developing Your Small Business’s Brand?

It’s common to earmark a percentage of actual or projected gross revenues for marketing, ranging from 3–20%. But it’s not that easy. Base your marketing budget on several factors, such as your industry sector, your business capacity, the amount of growth you expect (and can handle), and how quickly you want to grow.

If you’re a startup or building your brand, you might be looking at 20% for a website, logo, brand messaging and standards, sales collateral and such. Established companies can spend on the low end since they’re apt to have these marketing musts in place. However, marketing campaigns, media and print advertising and events can drive up costs, depending on their scale.

The Small Business Administration reports 7-8% is the norm, assuming that your business has revenue margins of 10–12% after expenses (including the marketing budget).

Customers Come First

Knowing what you know about your customers determines the marketing channels for which you will need to budget. There are very expensive channels, and very low-cost ones.

For example, digital marketing. If your competition is fierce, say you’re in telecommunications, then you’re going to be bumping up against the likes of AT&T and Sprint who can afford to pay $17 a click for the keyword “business phone service.” If your small business can handle the sticker shock, build your budget accordingly. If not, consider lower cost marketing tactics like social media and direct mail.

This is where marketing expertise helps. Take a look at your customer personas. Where do they search for your services or products? Are they in a specific geographic area? How long must you nurture them through your sales funnel? The answers help determine how much you should spend on marketing. There is no sense spending $17 on a click from a digital ad if a sales email campaign can achieve the same results.

Is Your Sales Foundation Solid?

All marketing channels must lead somewhere. Whether it’s your website or a call from the sale team, etc., it needs to be effective. For example, you plan on budgeting for a pay-per-click or social media campaign. The ads or posts will link to a landing page where customers can order or get more information from a salesperson. Is the landing page (and your website for that matter) responsive, on par with today’s security best practices, appealing, well-written, keyword rich?

If not, budget should be allocated to solidifying the foundation first. If your website needs a complete overhaul, that could take a chunk of your budget, but it’s money well spent and increases success for future marketing efforts.

Maximize the Money You Spend on Marketing

Only by accounting for every dollar you spend on marketing can you calculate its impact on your revenue. To determine your marketing budget, you’ll need hard costs. Like a new or revamped website and hosting fees, or a $17 pay per click ad cost – those costs are easy to nail down.

But what about social media, CRMs and email platforms? These costs are more difficult to estimate. You have the option to experiment writing your own social media posts when starting out. Some CRMs and email platforms offer a free version. It’s possible these low-cost or free tools will serve your purposes.

Working with a small business marketing firm, like EAG, can bring savings on media buys and other marketing tools thanks to long-standing partnerships with vendors.

Marketing Budgets aren’t Set in Stone

Once you determine how much you’ll spend on marketing, be prepared to revisit and reallocate. A competitor could go out of business, opening an opportunity to capitalize with a digital campaign. A pandemic could take the focus off in-store sales to online shopping. An event could be announced where you can geotarget your target customer.

Finally, if the data says a marketing campaign isn’t working, reallocate budget to another.

Remember, Percentages are Guidelines

Regardless of what some may tell you, there is no tried and true formula for determining how much to spend on small business marketing. Whether you’re creating your first-ever marketing budget or reassessing it, percentages are guidelines.

Need help creating a marketing budget? The EAG team consists of past and current business owners, adjunct business and marketing professors and members of nonprofit boards. We’re responsible stewards of clients’ established budgets, as well as advisors for budgets under development.

 

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