A moderate investment in a sound marketing strategy can reap big financial rewards for your business. But spending willy-nilly on unnecessary activities can burden your business with debt and hinder growth.
Having a marketing budget can prevent this. Learn how to set a marketing budget for your small business that’s based on value proposition and the unique state of your business.
What’s the difference between marketing and advertising?
Advertising is a type of marketing activity. While your marketing budget should include advertising, both activities have different goals.
Marketing is what you do to persuade your target base to consume your product or service. Advertising is what you to spread the word about your product or service.
Developing a catchy product slogan is marketing since it’s done with the aim of persuasion. Placing television ads is advertising since it’s done to communicate the existence of an offering to your audience.
What’s included in your marketing budget?
Don’t treat your marketing budget as “wish list” of unrealistic budget items. Few small businesses have the marketing budget to do so. Instead, zero in on activities that have proven themselves to provide a solid return on investment.
If an item has been a poor revenue generator in the past, you might consider excluding it. Similarly, exclude product development or sales costs. These activities should have their own budgets.
After creating a list of activities, rank items in order of priority. If your budget is lean, choose from among the most high-priority items.
The following are examples of essential activities to include in your marketing budget:
- Product catalogs
- Content marketing (e.g. blog articles, newsletters, e-books, case studies and video walk-throughs)
- Direct mail
- Brochures and flyers
- Cost of promotions (e.g. free product or service giveaways)
- Public relations (including PR releases, online reputation management services, etc.)
- Trade shows and seminars
- Print, online and television ads
- Pay-per-click ads
- Social media ads
- Expenses for production of the above ads, including vendor fees (graphic artists, photographers, etc.).
- Website development and maintenance
- Social media tools
- Marketing automation tools
- Email campaign tools
- Search engine optimization (including the cost of tools and fees for SEO consultants)
- Web analytics services.
What’s a good marketing budget?
There is no one-size-fits-all dollar figure for a small business marketing budget. This is because every small business is in a different industry, growth stage and scale. Most importantly, every business has different revenues.
You should consider all of these factors when establishing your marketing budget. But instead of adhering to a specific dollar value, it’s recommended that you allocate a certain percentage of your gross projected revenue to marketing.
What percentage of revenue should be spent on marketing?
A general rule of thumb is that a small business generating under $5 million in revenues should set aside no more than seven to eight percent of that revenue toward marketing. If you project $5 million in revenues, this would put your marketing budget in the realm of $350,000 to $400,000.
Keep in mind that this guideline assumes that you have a healthy 10 to 12 percent margin. The margin is the sales price of the product or service you’re offering minus the cost of acquiring your product or service.
If you have a considerably lower margin, you may want to set a lower marketing budget, to begin with. As your margin increases to a healthy level, you can allocate more toward marketing in your next marketing budget.
When considering how to set a marketing budget, don’t forget that it changes over the life of your business. In fact, it is a good idea to reevaluate the budget on an annual basis.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.