How to Create a Marketing Budget for a Small Business

A question we often receive is, how much money should I budget for my marketing and advertising? How much money should I set aside, and where do I market my business to attract more clients without wasting any of my hard-earned money?

Well, it depends. Although that is never the most satisfying answer to any question, in this case, it is the only correct response.

Small businesses often lack the budgeting processes of larger companies, so how do you put together an effective marketing budget? Although it may not be the most exciting task (it’s probably on par with your annual tax returns), developing a marketing budget is essential. If you don’t, you may risk spending money on marketing that will give zero returns.

In this article, we'll have a closer look at a few ways that small businesses can set a simple budget based on a marketing strategy that will get you the Marketing ROI (or Return on Investment) you are looking for, without spending it in the wrong places.

What is a marketing budget?

A marketing budget lays out how much your company spends on advertising each month. To be effective at marketing, you need to take into account all costs related to promoting your company, including:

  • Your website
  • Social media
  • Blog posts
  • Advertising fees
  • Email marketing
  • Implementing and managing digital marketing tools (paid online advertising, Search Engine Optimization, etc.)

Now, some marketing tools are 'free,' but your time is not! For example, promoting your business online through social media posts will require a significant amount of your time if you want to do it right. Therefore, you should take your time into account.

Many small businesses are treating their marketing budget as an afterthought. By the time they buy their equipment, outfit their location and hire staff, there is no money left for what is arguably the most important part of any business: attracting paying customers!

Without a budget, you may be flying blind. In the end, you are not spending enough, or you are spending it in the wrong places when you want to attract more customers to your business.

As IBM's Thomas Watson once remarked, "Nothing happens until someone sells something!"

So whether you are a startup or an established company, putting together a simple marketing budget will ensure that you get a clear picture of where you should be investing your marketing dollars.

What are your marketing goals?

A marketing budget is simply a tool to help you achieve your business goals and marketing efforts. If your goals aren't clear, you need to step back and work with your marketing team to develop an up-to-date marketing strategy. It should include the things you want to achieve for the coming months and years and an action plan for achieving them.

Your marketing plan must be specific and measurable. For example, how many new customers do you want to attract to your website? What do you want people to do once they land on your website? Are you offering a free sample or consultation? Are you launching a new product or trying to get into a new market? All these things will influence your necessary marketing expenses.

New companies (1-5 years in operation) should generally spend more on their advertising budget because not many people know about their products and services. This is typically something that many startup companies struggle with as they generally start on a shoestring budget. As a result, marketing is almost always at the bottom of their priorities. To prevent this, make sure to create a realistic marketing budget and include this in your overall business plan.

If your business is mature and has established brand recognition, you may be able to pull back on the amount you are spending on your marketing. So if you have built an excellent reputation and have a group of repeat customers, your marketing activities can shift into maintenance mode. But be careful not to become too complacent because it is incredible how quickly people forget about you.

How much should you be putting towards your marketing efforts?

The easiest and most common form of budgeting involves allocating a percentage of your annual revenue to marketing. Although this is not a perfect way to calculate the required budget, it gives you a starting point. (the drawback is that if your sales go down, your marketing budget will as well -- this is the exact opposite of what should happen).

A common rule of thumb for B2C (Business to Consumers) companies is to spend between 5 and 10% of their revenue on marketing. Selling to consumers is more expensive than businesses because the average sale per customer is generally lower, so it takes more customers to reach your total revenue.

B2B (Business to Business) should expect to spend between 2 and 5% on their marketing. This is because B2B businesses tend to sell more expensive products or services, so B2C companies require fewer customers.

The size of your business (based on annual sales) is another factor that affects a typical budget for marketing, with larger companies generally spending more on marketing than small companies.

You can also look at what other businesses in your industry spend when establishing your marketing spend. In Canada, the BDC has done extensive research on the average investments in marketing for small and medium-sized businesses.

If you have a designated marketing person in your company, you can determine the number of hours they spend a day on your marketing to get an accurate picture of the total marketing costs.

Another way of looking at your marketing budget is to determine the dollar value of each new client compared to the cost of acquiring this client. Let's say, on average, it costs $100 for a dentist to acquire a new customer. That seems like a lot, right? But if the estimated lifetime value of this client is $2,500, the initial marketing investment turns into a 2500% return on investment!

In other words, if for every $10 spent on marketing, you would receive $20 in return, you could argue that you should have an unlimited marketing budget. (of course, finding a direct correlation between your marketing expense and the return on your investment is more complicated than that - but that is the ultimate goal of your marketing and advertising).

Include all your costs

It is important to include all the costs related to marketing into your marketing budget. As mentioned earlier, posting information on social media is free, but the time you spend doing this is not.

To make it easy to create a budget for marketing, we have designed a spreadsheet template to develop a realistic marketing budget for your business. Once you can put numbers on paper, you probably find that you are already spending more money and time on marketing than you thought.

  • Website
    A professional website is a must for any business. Your website is the central hub that most, if not all, of your potential customers, visit before they decide to buy from you. It is the core of your online presence. Be prepared to invest in your website, and remember, you generally get what you pay for. A professional small business website ranges from $5,000 - $15,000+ depending on the scope and marketing objectives.
  • Content Marketing
    Creating useful and original content is one of the best things you can do for your customers. With the amount that people are online, there is a ravenous appetite for more information. If your business provides content about the solutions to your customer's problems, it will position you as the expert that can guide them to that successful future with your product or service.

    Even though you may write your own content, you still need to account for the time it takes for content marketing. Your time is valuable, so make sure to charge for your time to get an accurate picture of the cost.

    Once you have your content, you can use it on your blog, social media, and email marketing.
  • Printed Brochures and Signage
    Although digital marketing is used more and more to market a business, you shouldn't forget about some tried and true marketing tools such as brochures, business cards and signage in your marketing costs. For example, if you make sales calls or attend trade shows, printed materials are still important in how your potential customer perceives you.
  • Trade Shows
    Trade shows are still a great tool to promote your business, especially in the B2B market. The last few years have been difficult for the tradeshow industry, but it is already bouncing back and it is a great place to connect with potential customers.
  • Digital Marketing
    Whether through Google Ads or social media advertising like Facebook, Paid online advertising can help you get in front of a larger and more targeted audience. With the competition on search engines, sometimes you have to pay to play. Paid online advertising is an effective way to have potential customers find your business online.

    Effective Search Engine Optimization (SEO) is another important investment you should make to increase your online visibility. If customers cannot find your website, it is like you don’t exist.
  • Strategy and Campaign Management
    Having someone manage the implementation of your marketing can be a good option for small businesses that are already struggling with all the demands of running a company. So, whether you implement an internal marketing team or want to enlist a marketing agency's help, the time they spend on managing your campaign will have to be a part of your marketing budget allocation.

Creating a marketing budget will force you to put the real cost of your marketing on paper. Compare what you are spending with what is common in your industry, and you can know that you are in the right ballpark. Always go back to your strategy and why you are investing in marketing in the first place.

The old adage ‘“you have to spend money to make money,” is still true, especially when it comes to your marketing. And once you see the results, your marketing will begin to look more like an investment.

Check out this free marketing budget template to help get your marketing budget on the right foot:

Marketing Budget Template

Posted: January 27, 2022