Are you struggling to figure out the perfect small business marketing budget?
Trust me: You are not alone!
While there’s no one marketing budget template that fits EVERY business, there are roughly three categories most businesses fall into. Knowing which budget category is best for your small business depends on where it in its lifecycle.
I’m going to show you how to create a marketing budget plan that will help you GROW your business, wherever it is now.
Let’s get to it!
First, I want to start with a rule.
Marketing Budget Rule #1:
Your marketing costs should equal a percentage of your gross annual revenue.
According to the CMO Survey, B2C (business-to-consumer) businesses with annual revenues of $25 million or less allocate an average of 11% to their marketing budgets.
Broken down further:
- Service-based businesses (on average) allocate 10.9% of revenue for marketing
- Product-based businesses (on average) allocate 16.3% of revenue for marketing
Remember, those are just averages.
It’s important to realize that once you’ve established a marketing budget, you’re not married to it! You can — and should — change your budget according to your business’s current situation and the goals you’re trying to reach.
Consider these statistics from a recent study of publicly traded companies:
- Businesses that grew 1-15% year over year spent an average of 16.5% of their revenue on marketing
- Businesses that grew 16-30% year over year spent an average of 22% of their revenue on marketing
- Businesses that grew 31-100+% year over year spent an average of 50.2% of their revenue on marketing
I know, right?
I’m not saying YOU should spend 50% of your revenue on marketing! These are HUGE companies with deep pockets (like Microsoft, Oracle and Twitter), whereas most small businesses are marketing on a budget.
The cause-effect is the same: The more you put into your marketing budget, the more your business gets out of it!
So let’s get to those marketing budget templates and categories, shall we?
We’ve already established that the average marketing budget should be a percentage of your gross annual revenue.
If your gross revenue for 2015 was $500,000…
- 10% of that would be $50,000,
- 15% would be $75,000,
- 20% would be $100,000, and so on.
Here’s where it gets sticky:
If you’re a new business, or if your revenue fluctuates throughout the year, you should reassess your gross revenue every quarter (at least), to get a solid idea of what your marketing expenses (and budget allocation) should be.
Now that you know your gross annual revenue, you’re ready to set a marketing budget.
There are really three phases to a business’s lifecycle, so we’ll work according to those when setting up these sample scenarios.
(Remember, these are just jumping-off points!)
1.) If you’re a startup or just launching a new product: your marketing budget should be 25-35% of your revenue (to be assessed quarterly)
New businesses need more marketing capital to get off the ground. Marketing is an INVESTMENT — you’re investing in your business! To give your fledgling company a chance to succeed, you need to dig your heels in and get marketing.
Having said that:
Ten percentage points is a huge range. How do you know where your business falls?
I’ll tell you!
If you don’t have a lot of competition, you can probably get away with 25%. If competition is heavy, though, you’ll need to increase your marketing budget percentage.
Here’s a tip:
Rate your level of competition on a scale of 10. If you’re surrounded by established businesses with big marketing budgets (dentists often fall into this category), you’re at a 10. If you’re selling a unique product or service and you have virtually no competitors, you’re at a 1.
Let this number guide your marketing budget percentage. The higher the competition, the higher your percentage.
Once you’re bringing in a sustainable revenue, you can adjust your business budget — because you’ll fall into the next category.
2.) If you’re an established business that wants to grow: your marketing budget should be 12-18% of your revenue
You’re growing, you’re making money, you’re starting to get comfortable… don’t stop now!
Again, competition is a factor here. Spend closer to 12% if you have no competition, closer to 18% if you have lots — then let your profit margin help you decide from there.
If your business has little competition, you might set your marketing budget at 13%. But if you sell high-priced items with a significant profit margin (say, 75%), you can afford to bump up your marketing budget, to, say, 16%.
If you have a healthy amount of competition, you might start with 15%. But if your profit margin is low, you might bump it down to 13%.
But keep this in mind:
HOW you spend your budget is every bit as important as HOW MUCH you’re spending. If you’re not getting the results you want, try changing your marketing budget allocation.
Look at the results you’re getting from each channel, and move your budget around accordingly.
Let me give you an example of how your results should affect your budget:
If your pay per click (PPC) advertising is generating a lot of new leads, but your social media ads aren’t, take some of that money you’re spending on social media and invest it in PPC!
It will take some trial and error before you find the right mix.
You should never stop measuring and tweaking the elements of your marketing — especially given how quickly digital advancements are changing today’s marketing landscape!
3.) If you’re a stagnating or declining business: add 3-10% MORE to what you’re currently spending
The severity of your situation should determine whether it’s closer to 3% or 10%, but raise your budget for 6 months and you should see an impact.
If you’re prospering again after 6 months, don’t stop! Keep going and you will CONTINUE to grow!
If after 6 months you’ve only returned to stable revenues (or are still in decline), consider increasing your budget again until you find a number that reverses that trend.
When many business owners find themselves in the position of needing to cut expenses, the first thing they do is cut their marketing budget.
If you cut your advertising budget, you’ll cut your revenue, too. If you find your revenues falling, you need more marketing going OUT to bring IN more income!
Here’s a sample marketing budget:
Say you’re the owner of a restaurant that typically generates $1 million in annual revenue.
You’ve been spending 12% of that on marketing — $120,000.
But for the last two years, revenues have been stagnating at around $900,000.
So you increase your budget by 3% to 15% ($150,000) and do more marketing — and watch your revenues follow suit!
Want more help?
- Find more tips and a marketing budget calculator here.
- I’ll be talking about marketing budgets (and A LOT MORE!) at the next Small Business Owners Growth Summit. These events sell out fast, so register today!
- If you can’t make the growth summit, we can always help you over the phone (it’s FREE!). Just call one of my marketing consultants at 800-628-1804.
Sources: The CMO Survey, Vital Design