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.