Setting a budget for marketing is a crucial step in any marketing strategy, especially for small business owners looking to maximize their return on investment. A well-planned marketing budget that aligns with your overall business goals can help you make sure you’re investing in the right areas to drive growth, build your brand, and retain customers.
Whether you’re in a growth phase or stabilizing your market presence, understanding how to allocate your budget for marketing effectively will set the foundation for successful marketing campaigns. In this guide, we’ll walk you through everything you need to know about planning and managing your marketing budget.
Key highlights
- The amount a business should allocate to marketing varies by industry, company size, and growth phase. Reviewing marketing budget samples from similar businesses can offer valuable insights.
- Common pitfalls in marketing budget management include overemphasis on ROI, unclear goals, poor audience understanding, misallocation of resources, and failure to track performance. Avoiding these mistakes ensures that your marketing budget delivers the desired results.
- When assessing your budget for marketing, consider internal resources, third-party providers, publishing fees, and specific marketing goals. Use marketing budget samples to outline and track these factors.
- Small businesses should invest at least 5% of annual revenue in marketing, hyper-target their most important audiences, and consider attending trade shows and conferences for direct engagement with potential customers.
- Choose digital marketing channels and allocate a budget based on your marketing goals. Consider the 50/30/20 rule for allocation—50% for essentials, 30% for non-essentials, and 20% for experimental initiatives.
How much should a company spend on marketing?
Determining how much to spend on marketing is a common challenge for businesses of all sizes. Marketing budgets vary widely based on industry, company size, and growth rate. Typically, businesses allocate a percentage of their revenue to their marketing spend. For small businesses, a small business marketing budget often requires more careful planning to ensure every dollar spent on marketing costs contributes to the company’s success.
When budgeting for marketing, consider your overall business goals, expenses, and the current growth phase of your company. If you’re in a growth phase, your marketing budget for small businesses may need to be more aggressive to capture new market share.
On the other hand, if you’re looking to stabilize, your budget for marketing might be more conservative. Analyzing marketing budget samples from successful companies in your industry can provide a benchmark for your budget planning.
Common marketing budget mistakes
Even the most carefully planned marketing budget can go off track if common mistakes are not avoided. Here are a few to watch out for:
Focusing too much on ROI
While return on investment is important, fixating solely on ROI can lead to short-term thinking. Your marketing investments should also focus on long-term growth, brand awareness, and customer loyalty.
Not setting clear marketing goals and objectives
Without clear goals, it’s challenging to measure the success of your marketing efforts. Define what success looks like for each marketing campaign and set measurable objectives. Looking at examples of marketing budgets across various industries can help you understand how to allocate resources effectively and avoid common pitfalls.
Not understanding the target audience and their needs
Effective content marketing and digital marketing channels depend on a deep understanding of your target audience. Focus your small business marketing budget on channels that resonate with your audience; this will be essential when you segment and personalize your campaigns.
Not allocating the budget to the right marketing channels
Every marketing strategy requires the right mix of channels, whether it’s social media marketing, digital advertising, or traditional advertising. Misallocating your marketing budget can lead to wasted marketing costs.
Not tracking and measuring marketing performance
Use tools like Google Analytics to measure your marketing spending and efforts. Regularly compare your actual spending to your budget for a marketing plan to identify areas for improvement.
How to set your marketing budget
Creating an effective marketing budget starts with identifying your marketing priorities. Here’s how to make marketing budget templates to get started:
Identify your marketing goals
Your marketing strategy should aim to build a sales funnel or generate direct sales to boost gross revenue. To create a marketing budget, determine both short-term and long-term goals and set key performance indicators (KPIs) as part of your overall marketing strategies. Examples of short-term goals include increasing website traffic, generating leads, and boosting sales revenue.
To expand on this, let’s consider the difference between short-term and long-term goals.
- Short-term goals, such as generating a certain number of leads within a quarter, help to build momentum and drive immediate results.
- Long-term goals, such as increasing brand loyalty or expanding into new markets, require sustained effort and investment.
To have a proper balance of short and long-term goals, allocate your marketing budget to address immediate needs while also investing in your business’s future growth.
If you’re not sure where to start, you might consider studying examples of marketing budgets for small businesses in your industry that reflect conservative and aggressive growth strategies.
Understand your target audience
A buyer persona is a fictional representation of your ideal customer. You can have more than one but try to focus on no more than five. When developing buyer personas, get specific and let data guide you. Knowing your audience is crucial for social media marketing, digital advertising, and content marketing efforts.
Let’s dive deeper into creating these personas. Start by analyzing your existing customer base to identify common characteristics. Use data from social media platforms, website analytics, and customer feedback to build detailed profiles that include demographics, behavior patterns, motivations, and challenges.
For instance, if you’re targeting young professionals, your social media marketing strategy might prioritize platforms like Instagram and LinkedIn, where this audience is most active.
Understand your market and competition
Market research, particularly buyer demographics, can help you better understand your target market. Gauging information like market size, growth rate, and competition is essential. Additionally, researching your competitors’ marketing budgets can provide valuable insights for setting your own.
For a more comprehensive approach, consider conducting a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) to identify where your business stands relative to competitors. This can inform your marketing strategy and help you allocate resources effectively.
For example, if a competitor is heavily investing in video marketing on YouTube, you might choose to allocate a portion of your marketing budget to explore this channel, provided it aligns with your goals and audience preferences.
How to assess your budget for marketing
When you’re ready to build your budget for marketing, there are several key factors to consider – from internal resources and costs to external providers and third-party fees.
A thorough assessment will also be useful when you set benchmarks, track KPIs, and plan your resource allocation. Let’s take a look at each of these factors and how to assess them for your marketing budget.
Internal resources and overhead costs
Internal resources include both people and purchases. The amount of time staff spend on marketing activities plus the total cost of their wages gives your total people cost. This should be factored into your overall budget for a marketing plan.
Moreover, consider the opportunity cost associated with internal resources. If your team spends a significant amount of time on marketing campaigns, it may detract from other critical business functions. Weigh the benefits of outsourcing certain marketing activities to agencies or freelancers who specialize in areas where your team may lack expertise and/or time.
This can optimize your overall marketing spend while using your internal resources most effectively.
Third-party providers and agency fees
Third-party providers, like advertising agencies or integrated marketing firms, can help improve market targeting and create compelling ads. This allows your marketing team to focus on campaign management and long-term strategy development. Including these fees in your budgeting for marketing ensures that you’re adequately prepared for external costs.
Working with agencies also offers access to a broader range of tools and expertise that might be cost-prohibitive to develop in-house. For instance, a digital agency might have specialized knowledge in search engine optimization (SEO), paying customers conversion strategies, or online ads management, helping to drive better results from your digital advertising efforts.
Publishing fees
These fees apply to paid advertising platforms like Meta, Google Ads, TV stations, and radio stations. Depending on your marketing strategy, these can represent a significant portion of your marketing spend. Be sure to account for these costs in your marketing budget.
It’s important to regularly review and optimize these costs by analyzing the performance of each channel. If your Google ads are driving the most conversions at a lower cost per acquisition (CPA), it may be worth reallocating more of your budget for marketing to this channel.
Conversely, if a traditional advertising channel isn’t delivering the expected results, consider scaling back or rethinking your approach.
Marketing goals
Understanding your goals—such as increasing followers, website visitors, or webinar attendees—helps you work backward to determine how much money you need to spend to achieve those metrics. Use marketing budget samples to outline these goals and track your progress.
For example, if your goal is to increase your social media marketing followers by 20% over six months, calculate the potential costs involved in running social media ads, boosting posts, and creating engaging social media posts.
This approach ensures your marketing budget is directly tied to measurable outcomes, making it easier to justify your marketing investments and adjust your strategy as needed.
How to create a small business marketing budget
For small businesses, creating a small business marketing budget requires a targeted approach. Here are some tips:
Invest at least 5% of annual revenue back into marketing
This is a good starting point for small business owners to ensure consistent growth.
Expanding on this, it’s essential to recognize that this percentage can vary based on industry norms and business objectives. For example, companies in highly competitive markets may need to allocate a larger portion of their revenue to stay competitive. Consider adjusting your marketing budget as your business grows or as new opportunities arise.
Hyper-target your most important audience
Focus your marketing investments on channels that yield the highest return. For example, video marketing and social media platforms can be particularly cost effective for small businesses.
One effective strategy is to develop a tiered targeting approach, where you allocate the majority of your marketing budget to your primary audience and a smaller portion to secondary audiences. This ensures that your key message reaches those most likely to convert while still exploring potential new markets.
Attend trade shows and conferences
Conferences that appeal to your target customers are perfect for engaging with potential clients when they are in the mood to learn about new offerings. You don’t necessarily need a booth—just get a ticket, walk around, and spark conversations. Events like these are ideal for small business marketing efforts.
Attending trade shows also offers networking opportunities with industry peers, which can lead to valuable partnerships and insights into emerging trends. Additionally, many conferences offer speaking opportunities that allow you to showcase your expertise, further enhancing your brand’s visibility without significant marketing costs.
Allocating the budget to marketing channels
Choosing and allocating marketing channels is essential when building a marketing budget for small business. Here’s how to do it effectively:
Choose your marketing channels
Consider which digital marketing channels will best reach your target audience. For example, social media platforms like Facebook and Instagram are great for social media marketing, while Google Ads and online advertising can help you reach a broader audience.
It’s essential to understand the strengths and weaknesses of each channel. For instance, video marketing on platforms like YouTube is highly effective for storytelling and building brand awareness, but it requires a higher initial investment in production.
On the other hand, social media ads on platforms like Instagram might offer quicker returns with lower production costs but require continuous content creation to maintain engagement.
Allocate budget to channels based on goals and objectives
Allocate your marketing budget for small business based on your goals and objectives. Consider the ROI of each channel and adjust your marketing spend accordingly. For example, if social media ads yield a high return, allocate more budget to this area.
In practice, this might mean dedicating a significant portion of your budget for marketing to digital channels if your goal is to increase online sales.
Conversely, if brand awareness is your primary objective, a more diversified approach that includes both digital and traditional advertising might be more appropriate. Regularly review the performance of each channel and be prepared to shift resources as needed.
Consider the 50/30/20 rule for marketing budget allocation
The 50/30/20 rule suggests allocating 50% of your marketing budget to essential expenses, 30% to non-essential expenses, and 20% to experimental initiatives. This ensures a balanced approach to your marketing investments and allows room for innovation without overspending.
Let’s break this down further:
- Essential expenses: These include the foundational elements of your marketing strategy such as Google ads, content marketing, and website maintenance. These are the non-negotiable costs that keep your marketing engine running.
- Non-essential expenses: These might include activities that enhance but are not critical to your core marketing goals, such as branding refreshes or secondary advertising campaigns.
- Experimental initiatives: Allocating 20% of your marketing budget to new ideas allows you to test innovative approaches like influencer marketing, emerging social media platforms, or new digital channels. This can help you stay ahead of the curve without risking your entire marketing budget.
Measuring and evaluating marketing performance
Once your marketing budget is set, it’s important to measure and evaluate its effectiveness so that you can make adjustments, update priorities, and build on your successes.
Prepare your measurement and ROI analysis
As you allocate your budget for marketing, track your progress toward your goals to determine whether your marketing investments are paying off. Tools like Google Analytics are excellent for measuring ROI across different digital marketing channels.
Expanding on this, consider setting up custom dashboards that provide real-time insights into key performance indicators (KPIs) such as conversion rates, cost per lead, and overall ROI. This allows you to make data-driven decisions and quickly adjust your marketing budget as needed to optimize performance.
Track your marketing metrics and KPIs
Tracking metrics like website traffic, lead generation, conversion rates, and customer acquisition costs will help you measure the success of your marketing campaigns. Regularly compare these metrics to past periods. First, establish a baseline and then develop more concrete goals for growth.
Consider implementing a tiered tracking system where you monitor both high-level metrics (e.g., overall website traffic) and more granular data (e.g., bounce rate, time on site) to get a complete picture of your marketing efforts. This comprehensive approach ensures that you can identify and address issues before they significantly impact your marketing campaign outcomes.
Adjust your marketing budget based on performance data
Use performance data to adjust your marketing budget. If certain marketing strategies are performing well, consider increasing their budget. Conversely, reduce spending on channels that aren’t delivering results. This flexibility is key to maximizing your marketing spend.
Moreover, consider reallocating funds to marketing channels that are showing promise but may require additional investment to fully realize their potential.
For example, if a social media marketing campaign on a new platform starts to gain traction, increasing its budget could lead to exponential growth. This approach ensures that your marketing investments are always aligned with the most effective marketing strategies for your business.
Remember, there are no “right answers” there is just what is working and what is not.
Need help with your budget for marketing?
Creating an effective budget for marketing is essential for the success of any business, especially for small businesses. If you need assistance in crafting a marketing budget that aligns with your business goals and maximizes your marketing investments, we’re here to help.
Contact us today to discuss how we can support your business in reaching its full potential through strategic budgeting for marketing.
