Determining Your Marketing Budget: A Guide for Small Business Owners


I meet lots of people networking. Many of them are small business owners such as:

  • Lawyers
  • Realtors 
  • Dentists 
  • Spa Owners 
  • Accountants 
  • Insurance Agents...

and more, of course. Many times, when I speak to small business owners about "marketing," they have an idea in mind of what "marketing" is...  

They might think social media marketing. Or their go-to idea might be website design. Perhaps they are starting a new business, in this case "marketing" to them means a logo, business cards and brochures, etc. So, they might think of marketing as branding and graphic design

The thing is... they're both right and wrong with these ideas.   

They're right, because each of those items listed can be considered marketing -- they are all deliverables.

But what makes this sort of "wrong," is that it's not a strategic approach to marketing. It's not what I think about as marketing.  

How to Make it Strategic Marketing: A Real Example  

Here's just one real-world example of making your marketing worthwhile. First off, you need a strategy aimed at results. One-off deliverables might be needed but sales are what you really want. 

When I first met my latest client, a local spa business owner, she told me she was looking for social media content. She felt she needed to be producing content regularly on social platforms to help drive traffic.

Will organic social media content posts drive results? 

Risky. It's a (very) LONG-term game. 

That's just one tiny slice of the marketing pie to feed your whole business. The chances of gaining customers from organic content has drastically reduced as platforms get more crowded. Furthermore, she just doesn't want to do it.    

Enter: A strategic approach aimed at results

We talked about doing a paid social media ad campaign. But what does she need for that to work? Quality content. The right story. A powerful message that is positioned to convert. 

So, a story of the experience of her business with a professionally produced video came into focus. 

Once all was said and done we decided to package 3 pieces of the puzzle together. This included a video shoot, a content library targeting the message she wants to send and a social media ad campaign.  

But guess what?

Once we started working together we also learned she could use some consulting on her offer. That means packaging a special offer. This way when someone clicks on an ad, the likelihood of them converting in some specific way will increase.  And in order to present the offer persuasively we needed to add more information to her website. So, we are doing that added value.  Because it needs to happen to increase her chances at success.   

My family are small business owners so I understand that sometimes you think of marketing as a big expense. But as I tell my family, we have to think of marketing as an investment. It's the engine you need to make your business continue to flourish. 

How to Determine a Marketing Budget 

Of course, I wish I could say, the magic number is X. But the truth is there is not a one-size-fits-all number. The good news is, the following tips can help you determine what your marketing budget should be. 

First, consider a few factors. What are your business goals? Do you want to sell soon? Are you building a book of business? What stage are you in now?

What are some industry standards? Are you as visible, less visible or more visible than your competition? What do they do to build business and how can you differentiate?

And you must consider the financial health of your business. Marketing and advertising are critical investments that fuel the growth and visibility of your business. And at the same time, it has to make sense. 

Next, calculate your gross profit. Examples always make this real. So, let's say it's $500,000 is gross revenue. Minus the costs your business incurs, let's say that results at $350,000. It's from this number that all operational expenses, including marketing and advertising, must be budgeted. So what does that look like? 

Industry Benchmarks: What Do They Do? 

A practical starting point is to look at some benchmarks. On average, businesses allocate around 7-8% of their gross revenue to marketing, as suggested by the U.S. Small Business Administration. For the above example that would be ($35,000-$40,000) However, this percentage can vary widely depending on the industry. For instance, consumer-facing industries such as retail and hospitality might invest up to 10-12% due to higher competition and the need for brand differentiation. Conversely, B2B businesses may spend around 6-7%, focusing more on direct sales strategies and digital marketing.

Business Lifecycle Stage

The stage of your business lifecycle is also a critical determinant. New businesses may need to invest a higher percentage of their gross profit, sometimes as much as 12-20%, to establish their brand, build customer awareness and generate leads. Established businesses might reduce this to maintain brand presence and loyalty among existing customers. It depends where you are in the cycle. 

Goals and Objectives for Marketing 

Your marketing strategy should be goal-oriented. Are you looking to break into a new market, launch a new product or increase brand awareness? Each goal may require different levels of investment and types of marketing initiatives. For instance, digital marketing efforts like SEO and content marketing might be more cost-effective for building brand awareness, while direct sales efforts could be better for launching a new high-ticket product.

Evaluating ROI

A crucial aspect of determining your marketing budget is understanding and measuring the return on investment (ROI). Marketing should not be viewed as an expense. It's an investment that generates returns. By setting clear KPIs (Key Performance Indicators) such as increased sales, website traffic or customer acquisition costs, you can assess the effectiveness of your marketing strategies and adjust your budget accordingly.

Flexibility and Continuous Assessment

The market is ever-evolving, and so should your marketing budget. It’s important to remain flexible and adjust your spending based on performance data, market trends and changes in your business. Regularly reviewing your marketing strategy and financial performance can help you make informed decisions about where to invest your marketing dollars for maximum impact.

Digital vs. Traditional Marketing

In today's digital age, small businesses have an advantage in accessing cost-effective and trackable marketing. Digital marketing may offer a better ROI than traditional marketing methods. But never rule out your options to explore. Our team of consultants have leverage in traditional media like TV, for one. And because of the diversified landscape of media today, what wasn't accessible in years past, may be now. Especially when you work with consultants like us! 

To Sum Up: Determining Your Marketing Budget 

There is no magic number that fits all businesses when it comes to your marketing (and advertising) budget. But there are some rules of thumb to help you determine what's best for your business. 

Consider your industry, your business goals, the financial health of your business and the performance of your marketing efforts. Then, apply the above mentioned percentages. 

Using marketing and advertising to your benefit is what we're all about so if you have questions about how strategic marketing might benefit you, contact me here and we can discuss it. 

Remember, the ultimate goal is not just to spend money on marketing deliverables but to invest in your business's future for long-term success. 

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