Owning a business is about more than selling goods and services. If you’re not proactively marketing to your customers, then you risk being outshined by competitors.
There are two options to market your business:
- Using SEO to rank on search engines and drive organic traffic.
- Pay for search and social media ads to get faster results.
But what percentage of your profits should you spend on marketing altogether? It depends.
So, in this guide, we’ll cover:
- What the average small business spends on marketing
- How to determine your marketing budget
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What Does the Average Small Business Spend on Marketing?
Being savvy with your business income is smart. But don’t think of marketing as just another expense — it’s an investment toward the growth of your establishment.
A recent survey found overall marketing spending increased by 5.2% over the last year and may grow by 13.4% in 2022. Around 58% of budgets are for digital marketing activities, while traditional advertising spending may reach 1.4%.
There’s no specific number to target for your marketing spend. But here are several things to consider:
- The type of business you’re in
- How well your business is doing
- The popularity of your product
- Your business’s long-term goals
Set your budget based on the previous year’s expenses. Then, use a percentage of that amount to dedicate to business marketing.
How much you set aside depends on your industry. Here’s an example of how others are doing it:
Businesses mostly use a percentage of revenues as a guide, so it can vary widely.
For example, Deloitte’s 2020 CMO Survey found that consulting services typically attribute 13% to their marketing budget while software and technology platforms attribute 12%. Then, in the healthcare industry, the marketing budget sits around 7% of the total budget.
Alternatively, business-to-consumer (B2C) product-focused and service-focused companies allocate 12% to 15.9% of their overall budgets to marketing teams. Business-to-business (B2B) product-focused and service-focused companies attribute roughly 9.4% to 11.4% of the overall budget to marketing efforts. So, there’s no one-size-fits-all figure for marketing budgets.
Here’s what several small business owners, marketing professionals, and executives recommend.
“Our strategy for deciding on what to spend depends on the previous year’s sales. We look at what we spent and the revenue it generated for us. Then we decide how much more to invest to hit our goals for the year.” — Jeff Moriarty, Marketing Manager at Moriarty’s Gem Art.
During the 2020 holiday season, Moriarty spent $15,000 from November to December — resulting in about $100,000 in sales.
“This year our goal is to hit $200,000, so we’re investing $30,000 into marketing. The one thing to always consider is the risk. Things change year to year and it’s no guarantee you’ll always get the same return on your investment you did the year prior,” Moriarty says.
Jake Hill, CEO of DebtHammer says his company spends 7% of its gross annual revenue on marketing — which means the exact amount spent changes each year.
Hill says, “A lot of small businesses stay within the 2-5% range, especially when they first start, but spending up to 9% can be worth it since marketing directly ties into your revenue.”
Anvil Media President and Founder, Kent Lewis, says this: “Based on my experience over the past 25-plus years across nine agencies, I’ve found the easiest way to set a marketing budget is a percentage based on revenue. For startups and high-growth companies, I typically see a 20% to 30% ratio, such as 25% of estimated annual revenue becoming the marketing budget for the upcoming year.”
Lewis recommends 5% to 10% of projected revenue for more mature companies, noting those with starved marketing budgets usually fail to gain traction and run out of runway.
“Those that over-invest without a well-defined value proposition or functioning product can also put the company out of business. Of that entire marketing budget, I recommend small businesses allocate 50% to 80% toward digital channels, as they’re the most measurable, easiest to set up and manage.”
In closing, Lewis shares the typical average amount small businesses spend on marketing based on his 21 years of experience with more than 1,000 clients.
“I’d estimate the average small business is spending between $75 and $150,000 on marketing. These would be companies with two to 20 employees.”
How to Determine Your Budget
Most marketing budgets rest around 11% of the total company budget. But how do you draw up the budget and determine what to keep and what to remove?
Here are a few items to consider as you plan your marketing budget allocation:
- Software: You may need software to create your marketing campaigns, perform marketing analytics, or manage your everyday processes
- Advertising: Calculate how much you’ll spend on social media promotions, physical and native ads, search engine ads, sponsored content, and other paid opportunities
- Content creation: Budget how much will go into content creation — videos, images, blog posts — and adjust based on return on investment (ROI)
- Personnel: If you hire new workers, budget costs like onboarding, benefits, technology, and more
- Freelancers: If you plan on testing out your marketing strategies or running temporary campaigns, you may need a short-term freelancer before hiring a full-time employee
With the success of digital media, consider allocating at least half of your marketing budget to video streaming platforms, search engines, social media, and other popular digital channels.
How to Create a Marketing Budget for Your Small Business
Don’t rely on spreadsheet knowledge to understand how you’ll allocate your marketing spend. Here’s what to do instead.
Define your buyer’s journey
Knowing the buyer’s journey — steps they take as they move from prospect to paying customer — shows how they interact with your marketing. This way, you can know where to set your goals and budget to reach them better.
- How people discover your products
- What they need to know before making a purchase
- Your monthly traffic
- The number of leads you generate monthly, and how many convert to paying customers
- Your typical lead generation and conversion budget
- The average value/revenue per lead
Identify the marketing strategies that work (or don’t work), where you should review and adjust your goals, and where to focus your marketing budget.
Align your marketing goals and budget
What are you trying to accomplish? That determines how much to spend and where to put your dollars.
Develop a budget focused solely on channels that help accomplish your marketing goals. Use your buyer’s journey as a guide.
For instance, you can allocate budget for:
- Sponsored social media posts: Generate followers, or increase reach and engagement on your social media pages
- Display ads: Promote new products or services
- Search engine ads: Drive traffic and purchases to your product pages
You’ll often want to allocate more budget to campaigns with more audiences and higher-volume offers.
Organize your priorities
Marketing tools — add-ons, upsells, upgrades, and other extras — are nice to have, but are they necessary? Keeping tabs on your priorities helps you figure out what to keep or remove from your marketing budget. Stay laser-focused on your target audience and how they want to receive your messages.
Today’s marketing tools may be worthless tomorrow. So, reassess the services, tools, and programs you employ to determine the real-time ROI of your overall marketing spend.
Spend smartly (using templates)
Most marketing budget templates have many boxes to tick. But don’t let that get to you. Review all the expenses detailed in the template and select only those that matter for your business.
The expenses you’ll find aren’t mandatory — they guide you, so you avoid overlooking hidden costs while creating your budget.
Measuring your ROI is the best way to determine if your marketing budget helped or hurt your business. Have in place a system to measure your ROI so you’ll know whether to increase the budget for items that bring more returns or revise it lower if your money went nowhere.
Maximize Your Spending
As a business owner or marketer, it’s critical to know your budget and resources to make informed decisions. By clarifying your business goals and budget, you can determine how much you can dedicate to marketing. Hopefully, this guide helps you to make that happen.