Businesses live and die by their financing, and when you run a small business, you’ll often be taking care of your finances without the help of a financial or accounting expert. In this case, it’s essential for you to budget in advance so that you don’t end up having any severe cash flow problems.
For small businesses, one of the biggest expenses will be marketing, especially when you’re an unknown business, and you still need to get your name out there and find customers. But if you don’t know what a normal marketing budget for small companies is, you might have no idea where to start with your own.
While there are some trends that can be useful to glean information from, often your budget will be highly dependent on your situation. Instead of relying purely on the trends and data, it’s better to learn what will affect your budget and then come up with your figure which is specific to your company. In this article, we’ll show you precisely how you can do that!
What Do You Want to Accomplish this Year?
Perhaps the most significant factor in deciding your marketing budget will be what your goals are for the year. It’s usually best to plan at least one year, especially when you’re talking about a budget. If you have big plans for the year, are ready to hire more staff and want to grow rapidly, you might choose to budget a huge percentage of your cash to marketing.
On the other hand, you might decide that this year you want to focus on refining your operations and HR processes instead and therefore only allocate a relatively small amount to marketing. It’s important to remember that once you’ve started the marketing machine, it’s hard to turn off.
Therefore, you need to ensure that you have the staff, operations, and resources necessary to fulfill far more orders than you might expect. Failing to do this will be wasting money on marketing and also will leave you with unsatisfied customers who might leave negative reviews online and seriously damage your reputation.
For this reason, a bigger marketing budget isn’t always better, especially if you’re unprepared for the growth. However, if you have systems in place, you can use marketing as a money printing machine, increasing your budget consistently and seeing a constant return of cash.
Figure Out What You Want to Spend Your Money On
While you might decide on what you want to accomplish for the year before you can name a figure you’ll need to decide what you want to spend your money on. If we look at posting flyers through the doors of locals, you may say that your yearly marketing budget is $50,000, but if you only use flyers, you might only be able to spend a fraction of that budget.
Therefore, you need to have a good idea of what you want to accomplish with each technique, what the natural limit of the tactic is and then conclude the amount of cash that you will need. If you’re operating in a small market, then it’s often the case that you’ll need to spread your marketing budget across methods like PPC, SEO and offline methods to spend your entire sum.
Your Industry and Competitors Matter
Instead of making the mistake of thinking in a vacuum, as if your business isn’t affected by the market of your competitors, you should keep them in mind at all times. If your competitors are marketing very heavily, you will need to dedicate a large amount to marketing regardless of if you want to grow rapidly this year or not.
On the other hand, if your competitors aren’t utilizing SEO or PPC to its full potential (hint: they’re probably not!), then you have a great opportunity at your hands. By maximizing your marketing budget in these two areas, you’ll be aware to acquire a large percentage of all of the potential customers in your area in a short period, arming you with cash and handicapping your competitors.
If we look at another scenario, say there is a decline in the industry because of a massive change or an economic recession, your marketing budget will need to adapt to that. In this situation, your conversion rate is likely to drop, and therefore you’ll need to spend more to get the same number of leads or make the decision to spend less and reserve cash for another year.
How Much Marketing Have You Done Before?
Finally, you’ll need to consider your position in the market. If you’ve marketed heavily in the past, then it’s possible that you don’t need a significant marketing budget, even to bring in thousands of leads. Whereas if you’re new to the industry, you’ll likely need to budget far more than the competition so that you can gain traction and fight against the entrenched brands in the industry.
Normal Marketing Budget for Small Businesses
According to a recent report, the average company spends 6.9% of their revenue on marketing. This figure lines up with our estimation that most businesses should spend between 5% to 10% of their monthly revenue on marketing. So, if you had $50,000 in income this month, we would recommend that you spend between $2,500 and $5,000 on marketing monthly.
The same report shows that B2B companies usually spend slightly less than average, around 6.4% while B2C brands selling products usually allocate 8.6% to marketing. Both of these figures sit within our range for companies that are looking to grow, while businesses that want to stay stagnant should spend less than 5% of their revenue on marketing.