How to Create a Small Business Marketing Budget

Marketing is important to the development and success of your business, whether you run a multi-million dollar company or a small business. How do you create a small business marketing budget? How much money should you allocate to marketing? How can you spend your marketing dollars wisely? Here’s how you can come up with a plan to market your business without spending too much:

Define Your Small Business Needs

More sales? More leads? Increased brand awareness? Your objectives will help you decide where your money should go. Once you define your needs, you can try to figure out how much you spend on each lead or sale. Then ask yourself how many similar clients you can afford to buy. So if you spend $10 to generate each new lead or sale, and you determine that you can afford 100 similar clients per month, then it’s easy to see that you will need a monthly budget of $1,000.

Calculate Your Minimum and Maximum Ad Spend

Entrepreneur Magazine recommends that you multiply 10 percent (to get the minimum) and 12 percent (to get the maximum) of your estimated yearly gross sales by the profit made on your average transaction. Deduct your annual cost of rent from the minimum and maximum figures.

For example, if my markup on a good or service is 50 percent, and I estimate that I will do $500,000 in sales this year, then my 10 and 12 percent figures would be $50,000 and $60,000 respectively. I must now multiply each of these figures by my 50 percent markup, which translates to $25,000 and $30,000. I will then have to deduct my rent, which is $18,000 annually. This leaves me with an ad budget ranging from $7,000 on the low side to $12,000 on the high side.

Established companies can actually spend as little as 3 percent of estimated gross sales less annual rent on marketing. On the other hand, new companies should budget between 12 and 20 percent of the estimated gross sales less annual rent. The reason for the higher budget is that new and emerging brands are seeking to achieve recognition and seize new market share with an audience that has absolutely no idea who they are or what they do.

Your marketing budget will automatically drop if you experience a slow quarter, and that is the advantage of using sales as your basis. Adjust your percentages downward if you’re opening a well-known franchise or buying a business that’s already established. On the other hand, you should adjust it upward if you’re selling big-ticket items with large profit margins, such as vehicles or houses.

The Dollar Approach

Many businesses simply set a flat dollar amount for their marketing budget. Rather than basing marketing budgets on the company’s sales, businesses base them on what they think they can afford. This approach is particularly useful for small businesses. Since there are no historical records of sales and marketing expenses, stating a flat dollar amount may be challenging during the first year of business.

Determine Where Your Customers Are

One of the weaknesses of small business marketing is that companies often do not really know where their clients have the best chance of seeing their communications. You can fix this by surveying both your employees and your clients. Ask them to be as specific as possible: if they say social media, ask which platform if they say on TV, ask which channel.

Consider Your Competition

An extremely competitive market will require a larger advertising budget more in line with what a startup will spend. Be aware of what your competition is doing, and do it better. Your budget should allow you to become and remain relevant in a tough marketplace, and it should also ensure that you could connect with your customers.

Conclusion

Regardless of the option you ultimately choose, the most important rule is to develop a marketing plan and set aside an advertising budget, which you will subsequently spend on your promotion efforts. Getting the word out on your small business is of paramount importance.