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Making Every Dollar Count: Marketing Budget for Small Business

Learn how to set an effective marketing budget for your small business so you can accomplish your goals.

Every business needs to invest in marketing to attract and convert customers. Unfortunately, that means spending money. Creating a marketing budget for small businesses can help you accurately allocate your funds to ensure you have enough for all your marketing efforts without overspending.

But how much should a small business budget for marketing? Ultimately, it depends on your industry and how much it costs to obtain customers. Most small businesses dedicate a specific percentage of their revenue to marketing efforts, but is it enough to cover the costs of all their marketing initiatives?

Part of being a successful business owner or marketer is knowing how to set a marketing budget for a small business and stick to it. It's easy to go overboard and spend too much on marketing only for it to yield less-than-ideal results.

Instead of using a shotgun approach and trying to reach as many people as possible, consider finding more cost-effective marketing campaigns that can help you reach your target audience without overspending.

So how much should you spend on marketing? Let's discuss how to create a marketing budget for small businesses to prevent overspending on this year's marketing.

Why is marketing important for small businesses?

Marketing is important for every small business, regardless of industry. Without marketing, your target customers may not even realize you exist. In addition, it can help educate customers about your products and services to help them make purchasing decisions while establishing trust with them.

You want your customers to trust you and see your business as the best of the best, and the only way to do that is to build trust and encourage customer loyalty. Marketing can also teach you more about your customers by providing you with vital marketing analytics, such as the types of products and services customers are most interested in, demographics, and buying habits, which you can use to learn how to market your small business more effectively.

And, of course, the main goal of marketing is to increase sales by continuously generating promotions for your products and services. Sales and marketing go hand and hand in every industry. With B2C companies, marketing can attract customers to a website where they can make a purchase. Meanwhile, B2B businesses rely on marketing to bring salespeople warm leads.

How much do small businesses usually spend on marketing?

So what's the average marketing budget for small businesses? It depends on revenue.

Many small businesses aim to spend 2% to 5% of their total revenue on marketing. However, it depends on how much you're willing to spend. In the last year, marketers reported a 10.4% growth in marketing spending, which is double compared to a year ago. Meanwhile, marketing budgets as a percent of overall budgets is around 11.7%, according to Deloitte's February 2022 CMO survey.

According to the US Small Business Association, B2C companies should spend slightly more on marketing than B2B companies. Companies just starting out should budget more to build awareness and attract customers. However, you can reduce your overall marketing spend once your business is well-established.

How to determine your small business marketing budget

How much should a small business budget for marketing? Unfortunately, there's no true average marketing budget for small businesses because every business is different.

Therefore, it's up to you to determine your marketing budget to ensure your small business can succeed in a competitive marketplace. Here's how to set a small marketing budget for your small business:

Define your marketing goals and objectives

Before considering any amount of actual money, you must define your marketing goals and objectives. Your marketing goals could be anything from increasing sales, leads, website traffic, phone calls, and so forth.

Your goals are just one part of your overall marketing strategy. The rest of the strategy will consist of action plans and strategies for how you'll reach those goals.

Setting SMART—specific, measurable, achievable, relevant, time-bound— goals is crucial before you determine your budget. This framework should help you set clear, trackable goals whether you're working on social media marketing, SEO, or an email marketing strategy.

To make your goals SMART, they should be more specific than "increase leads," Instead, you should determine how much you want to increase your leads, such as 15%, or give yourself a specific number of leads to aim for.

Next, you'll need to determine if your goal is measurable to ensure you can track key performance indicators (KPIs). For something like increasing leads, you might use various tools like CRM software to track leads.

The relevance is also crucial for goals because it can help you determine if your goals impact the business. For example, your company might want to grow its revenue. In this case, your goal might be to help it increase revenue by increasing leads by 15%.

And finally, your goals must be time-bound to ensure a proper timeline for creating the campaign and reaching your goals. Again, your deadlines must be realistic and allow you to monitor the different steps throughout the process to ensure you can reach your goal at the end of a specific campaign.

Once you've identified your goals, you can move on to the next step of the process of creating a marketing budget for small businesses.

Research your industry and competition

Researching your industry can help you learn more about what the competition is doing and how much they're spending.

B2B businesses tend to spend far less on marketing because they have sales representatives. Meanwhile, B2C businesses need to spend more on marketing because they don't have an active team of individuals reaching out to prospects.

Of course, this also varies by industry. However, understanding your market and competition can help you learn how to market your products and services better.

For example, learning more about your industry can tell you where your customers live, their education level, genders, and average income. However, it can also tell you more about customer wants and needs to help you find better ways to communicate with them.

Marketing budgeting also requires competitive research to help you determine businesses within the same industry that are performing well and the types of marketing and advertising they invest in.

Determine your revenue

One of the easiest ways to determine your small business marketing budget is to use a percentage of your revenue. As we've mentioned, this varies by industry and company, but most small businesses tend to spend anywhere from 2% to 5%. However, depending on your goals and revenue, you can spend more.

How much of your revenue you allocate to marketing will also depend on how long you've been in business. For example, a well-known company usually doesn't have to spend as much to market its products and services as a brand new one.

You can find your revenue by multiplying the number of sales and the average sales price or by reviewing last year's earnings reports to ensure you're working with a recent number and not an estimate.

It's important to remember that revenue is not the same as profit. Revenue represents the money generated, while profits are your income after expenses.

Consider all potential costs

Considering all costs involved in your marketing efforts is crucial because it can help you determine your spending. Of course, to estimate your costs, you have to know how much each marketing campaign will cost you, which is easier said than done.

For example, if you run PPC ads, you won't always know how much you'll spend since the total cost is based on clicks. Meanwhile, if you use email marketing for small businesses, you can determine how much you spend based on the cost of the software used and the salary of the employee or employees responsible for the campaigns.

The potential costs of your marketing campaigns may include the following:

  • Payments to agencies: Many small businesses opt to outsource at least some of their marketing to an agency. For example, you can hire an agency to create their entire marketing strategy to grow your business or focus on a particular type of marketing like social media. Payments to these agencies are considered marketing costs and must be included in your budget.
  • Salaries of employees: Another fixed cost is your employees' salaries. Any employees you have working on marketing efforts and various campaigns cost money, and they should be included in your marketing budget.
  • Campaigns: The campaigns are any marketing efforts, tools, and tactics you use. For example, if you invest in a billboard campaign, you should include the campaign's cost and any agency costs associated with design. Meanwhile, if you run PPC ads, you'll have to consider the cost per click (CPC) or cost per acquisition (CPA), depending on your earlier goals.
  • Equipment: Any marketing equipment and tools you use should be included in your overall costs. This includes graphic design software, CRM software for small businesses, email marketing software, etc.

Evaluate past marketing performances

Evaluating your past marketing performance can help you determine which campaigns performed well to help you decide whether you can get the same or better results.

In addition, reviewing past campaigns can help you find any weak links hurting your overall marketing strategy and budget. For example, you might find that it's much cheaper to acquire customers through social media than it is with Google Ads.

Reviewing past campaigns can help you avoid overspending, so keeping track of them is crucial. Unfortunately, many small business owners (and even experienced marketers) make mistakes.

For example, your research may have made you think that a billboard advertisement was a good idea based on the location of your target audience, only for you to find out that it yielded zero new customers.

In these instances, it's better to learn from your mistakes and avoid them in the future so you're not wasting money. Remember, your budget is tied to your goals and should be measured regularly to determine if the tactics you're spending your budget on are actually working.

Different tactics cost different amounts, so it's crucial to have a set of KPIs you can use to determine the effectiveness of different campaigns.

For example, you might find that tactic A yielded more leads, but tactic B yielded more qualified leads, resulting in more sales. Then, you can compare the cost of each tactic or campaign to determine which one was more effective.

Calculate your marketing budget

Now that you know your revenue and potential costs and have reviewed marketing tactics you've used in the past to give you a better idea of what works and what doesn't, you can set your budget. As mentioned, the easiest way to set your budget is by taking a percentage of your revenue and putting it toward marketing.

Unfortunately, there's a lot of advice out there telling you how much of your revenue you should spend on marketing, but you won't know if they're right for you until you actually see the numbers.

After reading this article, you know that B2B companies don't have to spend as much on marketing, so they may opt to spend 5% of their revenue on it. Meanwhile, B2C companies may choose to spend 10% of their revenue on marketing. Calculating your budget based on a percentage will give you an exact amount you can spend.

The main advantage of determining your marketing budget based on a percentage of revenue is that the budget isn't fixed and will grow with your business, allowing you to spend more the more you earn. It can also prevent overspending by ensuring only a small fraction of your revenue is spent on marketing initiatives.

Of course, you can also calculate a fixed marketing budget for a small business, which may be beneficial if you have to be more careful with how you spend your money. This may be ideal for startups and new businesses that don't have a sales history to work from. Instead, they can determine and stick to an amount they're comfortable with.

If you're unsure which budgeting strategy is right for you, you can create a sample marketing budget for a small business for both options and compare them to get an idea of the different ways you can allocate your marketing spend.

Track and adjust your budget

Earlier, we discussed tracking your marketing campaigns to ensure they align with your budget. However, you should also track and adjust your budget according to marketing campaigns and overall business revenue.

When you earn more, you can increase your marketing budget or stick with what you have if it's effective. However, increasing your marketing budget gives you more to play with to determine if you've chosen the right strategies and tactics or experiment with other options to find the best ones for you.

Additionally, constant re-evaluation can help you maintain your budget to prevent overspending and find lower-cost alternatives.

How to allocate your marketing budget

How you allocate your marketing budget is just as important as building it in the first place. There are several ways to market your business, including:

  • Social media
  • Email
  • Digital ads
  • Search engine marketing
  • Search engine optimization
  • Direct mail
  • Print advertisements

We've already discussed the importance of goals—they help you measure the effectiveness of your campaigns and align with overall business goals, such as increasing revenue. However, we haven't discussed the importance of knowing how to reach your customers.

Consider your target audience. Who are they? Where do they spend their time? How can you make them stop to look at your ads?

Luckily, you can use data to learn more about your customers, including their interests and how they like to spend their time.

How you allocate your budget across different marketing channels will vary depending on your business and its target audience. However, if you've invested in marketing before, you can use the data from your past campaigns to decide how to spend your budget.

For example, let's say that by comparing your KPIs and results from past campaigns, you've determined Facebook advertising yielded the most leads. Meanwhile, search engine optimization yielded the most cost-effective leads, meaning the CPA was much lower.

Armed with this information, you could spend more of your budget on search engine optimization to increase leads at a lower price than Facebook advertising, ultimately saving you money.

Remember, your brand doesn't have to invest in every marketing channel. Instead, you can choose the ones with the best results based on what you know about your audience.

In addition, each channel should tie back to your goals, allowing you to effectively allocate different amounts to different campaigns. A simple rule to follow is to allocate more money to the top-performing marketing channels and less to the less effective ones.

Measure the effectiveness of your marketing budget

Ultimately, a good marketing budget for small businesses comes down to your return on investment (ROI).

You can calculate your ROI by subtracting your expenses from the revenue of a particular campaign to determine whether your marketing strategies are helping you succeed. Measuring ROI can provide insights into your overall marketing strategy's effectiveness and each campaign, giving you data to make better decisions with your budget.

That said, ROI isn't the only way to measure the effectiveness of your campaigns. Some goals aren't monetary.

For example, you might aim to increase your website traffic by 20%. Instead of measuring your ROI, you would measure how close you got to that goal with a specific campaign to determine if spending the money was worth it.

Continuously measuring the effectiveness of your marketing budget can help you determine if you need to re-evaluate how you allocate it to different channels. For example, if a channel loses you money, you can reallocate that budget to a more successful campaign.

How to maximize your marketing budget

Most small businesses don't have a large budget, so they must find ways to maximize what they have. Here are a few tips to help you maximize your marketing budget for small businesses:

  • Segment your audience: Targeting the right audience is crucial. A shotgun marketing approach is never as effective as reaching the right people at the right time. Therefore, you should find ways to segment your customers based on interests, recent purchases, and other factors.
  • Use data to optimize strategies and campaigns: Marketing data can help you determine which campaigns are most effective while helping you learn from every mistake. Reviewing your data regularly can help you learn more about your customers and find better ways to communicate with them.
  • Improve internal operations: Every business needs a marketing strategy and a team that implements it. If your internal marketing operations lack project management or an effective plan, your marketing budget won't be properly allocated or managed.
  • Outsource when necessary: Outsourcing some marketing efforts can help small businesses save time and money, and it gives them access to professionals who already know what they're doing and can improve results faster.
  • Increase the impacts of each campaign: Many small businesses believe a marketing campaign isn't effective because it doesn't yield the desired results. However, there are several ways to increase the effectiveness of a campaign, such as creating better content, writing more effective ad copy, or focusing on the customer experience.

Make the most out of your small business marketing budget

Your small business marketing budget can impact your company's overall success. It can prevent you from overspending and serve as a guide to help you create an effective strategy based on the funds you have available to spend. But, of course, knowing how to use your budget is just as important as creating one.

Mailchimp makes it easy to maximize your small business marketing budget with a stack of tools to increase web traffic and reach, create compelling content, and measure the effectiveness of your campaigns. Grow your small business with Mailchimp.

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