As an entrepreneur, you’ve probably wondered how much money you should spend on your small business marketing. Especially once you’re fully launched, turning a real profit, and realize you need marketing to continue growing and meet climbing sales goals. Here’s the advice I give my potential agency clients when we’re discussing how much they should expect to spend.
If you’re here for the numbers, here’s a direct answer. While the U.S. Small Business Administration has its own marketing budget calculation formula and recommends about 7-8 percent of revenue going toward marketing, I think this is too conservative in a lot of cases. My recommended budget range is closer to 10-15% of gross revenue depending on the business and industry.
Another way I ballpark marketing spend numbers for a client is to recommend spending about 30-50% of their expense fund on marketing. This approach is for the client who is more comfortable first determining what’s safe to spend on overhead and then wants to talk marketing. Usually, the numbers are going to crunch down to about the same amount.
Why do I recommend spending above the U.S. Small Business Administration amount of approx. 8%? A few reasons.
First, I define marketing as a lot more than some direct mail, a low-paid social media manager and updating the website once a year. Many business operations that get lumped into other types of expenses can be categorized as marketing. CRMs, for example, often have marketing capabilities built in that businesses use (emailing) but never include in an actual marketing strategy or budget. The business administrator who is posting blogs for SEO purposes is partly being paid to market the business. So when a client wants to know about a budget for marketing, I have to consider everything that falls under the term, because I’m probably going to also recommend they pull all these elements together under a comprehensive, strategic marketing plan to create a real sales generator. And to make this happen, they need a full understanding of what they’re spending on now that could be allocated to a smarter strategy.
Second, if your business revenue is, say, $250,000, 8% is not an amount that balances well with what your business likely needs from marketing. Honestly, $20,000 a year on marketing is a tight budget for any established business that needs marketing to drive sales. Sure, you may be able to coast for a while on a lean marketing budget, but you are probably keeping your business small without the marketing investment it can truly afford.
Third, 8% feels like a lack of confidence in the business. If you’re proud of your product and you are certain there’s an audience that will love it, you should be more than happy to spend some money pushing the product. Your passion to sell/help/provide value should outweigh the hesitation to invest in appropriate marketing dollars.
Okay, now that I’ve made my argument for not being too frugal about your marketing, here’s a list of my recommended marketing expenses. When you see this list, you’ll understand why a small percentage of revenue is limiting to great business marketing.
Website account fee (plus domain registration)
Website management (please don’t let your website go without regular updates)
Email account fee (if you’re still getting away with free, you need a new email strategy. Hit me up!)
Networking event registration/minor print collateral (if you’re a local business)
Marketing to add as you grow
Social media management
Paid search ads
Paid social ads
Of course, all of this depends on the marketing strategy that’s right for your business at the level it’s at. When I create a comprehensive plan for my clients, they’re going to know exactly what costs it entails.
How to budget for marketing. Once you’ve decide what your total annual marketing budget will be, it’s time to break that down so you know how much active marketing you can afford to do on a monthly basis. Why? Because most things in marketing world operate on a month-by-month basis. Marketing professionals who offer services on retainer (like me) will come to you with a monthly rate. A lot of your basic platforms also require a monthly payment.
First, list your must-have expenses (see list above) and subtract those from the annual total marketing budget. Then, divide that amount by 12. There’s your monthly budget. Before you get too excited, remember that every dollar spent should have a strategy behind it. Don’t start dumping money into something that hasn’t been vetted by a professional.
Speaking of professional… When you’re ready to work with a marketing pro, here’s how to talk to them about marketing money.
Be prepared with an idea of what your monthly marketing budget is, but allow for some conversation around how you’re spending your entire marketing budget. Even if you feel like you do very little marketing, or your marketing expenses are set in stone and nothing can be changed, it’s helpful for your marketer to have the full context of what’s happening with both your marketing and your money invested in it.
You would be surprised how many small business owners I talk to who think they need a whole new strategy but really just need some thoughtful intentionality behind what they’re already doing.
And when it comes time to sign the contract with a marketing vendor, make sure they present measurable goals to track the performance of what they’re going to do for you. You’ll want to see results within the next six months to a year to determine if they’re a good investment in your business, as well as whether they’re bringing in enough with their marketing services to warrant increasing your agreement.
Wish you had a more specific list of marketing platforms and services that fit your business size and goals? You need my Create a Strategic Marketing Plan course. With this course, you’ll map out a custom plan for your business and narrow down which methods work for your goals, audience and budget best.