Talk of marketing budgets, goals and strategies can seem overly complicated or unnecessary when you just want to run your small business.
But having a budget and a plan will help you save money. Really.
So how do these small business owners decide where to spend their marketing dollars?
The short answer is many don’t—not really. We speak with small business owners often and many have an overwhelming amount of daily responsibilities. So it’s understandable that marketing decisions are often made spontaneously, based on new trends, on a friends’ advice or offers they’ve received from ad salesmen.
But what’s trendy or popular isn’t always the right choice for a small business.
Making the time to set a budget will force you to decide what you want to accomplish, how quickly you want to do it and where you’ll focus your budget.
It’ll also help you manage your spending.
Here’s how to get started with setting a marketing budget for your small business:
1. Assess last year’s results
If you didn’t spend money on marketing or advertising last year, or if your business is brand new, move on to step 2. Otherwise, it’s best to assess just how well you did in the past.
Where did you spend your marketing dollars? Social media ads? Email marketing? SEO? How well did those things perform for your business? Which elements are worth keeping and which should be cut?
It’s always a good idea to see what has or hasn’t worked in the past before planning for next year.
2. Set a budget based on revenue
If you spent money on marketing last year, then consider if you want to keep or increase that amount, based on results.
But, in general, one of the standard methods of setting a marketing budget is to use a percentage of gross revenue.
There’s no magic number. You’ll hear everything from 3% to 20% of revenue, but it really depends on your industry, the size and maturity of your business, your profit margin, resources available, and how quickly you want to grow.
For small businesses with less than $5 million in revenue, we generally recommend 5% as a starting point.
The U.S. Small Business Administration actually recommends 7% to 8% for this size business if your net profit margin is 10—12% after expenses.
But we think 5% is a good place to start, with the idea that the budget will grow with the business.
Keep in mind, your annual marketing budget will vary.
There will be years when you’ll need to spend more, especially if you don’t have your marketing foundation already set or need to update it.
For example, what good will it do to spend money on Google ads if the ads will lead to a website that’s outdated or ineffective?
Your website is one of the main foundations of your marketing online. Updating it every 3 years or so is an investment in improving your marketing efficiency overall. And having a more efficient site will save you money in the long run.
“If you are marketing from a fairly static annual budget, you’re viewing marketing as an expense. Good marketers realize that it is an investment.” – Seth Godin
This is why the next step is just as important as setting a budget.
3. Make smart choices when allocating your budget
There will always be new, trendy options to promote and advertise your business online
But it’s best to start by building the foundation that will hold up your other marketing efforts.
Build your foundation first with:
- Your business branding, logo and value proposition
- A professional business website that can capture leads
- An email service for marketing campaigns and mass emails (not Gmail)
- Brochures or any print materials
You might spend a bit more on these when starting up or when it’s time for updates, but you can then allocate the rest of the year on other activities, like ads, lead generation and sales campaigns.
Items that fall under your marketing budget include:
- Advertising (online, print or other media)
- Direct mail
- Email marketing
- Events & conferences
- Printed sales materials
- Public relations
- Sales or lead-generation campaigns
- Search Engine Optimization (SEO)
- Social media marketing
- Sponsorships or memberships
- Website development and maintenance
Will you have a big enough budget to cover everything you want to include? Having a marketing plan will help you prioritize.
Tracking results will help as well.
4. Track and check your results
While setting a marketing budget isn’t a perfect process, if you start with a minimum amount and track results, it will guide your decisions as you move forward.
Just be sure to give each tactic enough time to prove itself. SEO, for example, takes 6 months at minimum to begin showing results. Facebook ads should also be tested for a few weeks.
Overall, you should let your plan play out while you monitor it, then assess each quarter if it’s generating the results you need or if it should be re-adjusted.
We hope these tips will help you budget and plan a path to success. If you have questions or need help, let us know.