How to Create a Small Business Marketing Budget

Define Your Goals

Start by level-setting to define your goals and objectives. You don’t want to waste unnecessary money on marketing initiatives that don’t make sense for your business. Narrow down some tangible results you wish to achieve with your marketing efforts, whether that is to drive people to your website, generate more leads for an email list, or reach a specific quarterly sales goal. 

If you created a business plan, you may already have some marketing goals or sales projections to consider. From there, start prioritizing your goals, so you can know where to start with marketing and which tools you’ll need.

List Expenses to Include in Your Marketing Budget

Once your revenue goals are set, start listing the marketing expenses you expect to incur as part of your marketing strategy. Many small businesses rely on both digital marketing and print or direct marketing. 

Even if you’re considering social media marketing, which is free, realize that you may still have expenses in this area, such as paying for Facebook ads or promoting posts. 

Some common marketing expenses for small businesses may include:

• A website
• An email marketing platform
• Social media scheduling tools
• Online advertising fees
• Business cards
• Print advertising design and shipping fees (postcards, flyers, brochures)
• Print banners and marketing materials for in-person events like conferences
• Content creation services
• Prizes and items for giveaways

While this list isn’t exhaustive, it provides a good idea of what you can expect to budget for when it comes to marketing a small business. 

Calculate Growth Projections

Marketing creates sales, so you’ll want to look at how soon you will need to start turning a profit or hit specific revenue targets. 

One way to calculate this projection is to calculate the annual run rate for your business. Just take your monthly revenue (or desired monthly revenue) and multiply it by 12. So if you’re earning $12,000 per month, your annual run rate would be $144,000. Doing this calculation can help you predict future cash flow needs and make smarter budgeting decisions.

Knowing your run rate can also help you start to work backward and figure out how much marketing you need to do in order to get conversions and sales. Like anything else in your business, a marketing strategy will take time to implement and you may not see results right away. Additionally, you may have to make changes to your strategy based on those results. Be sure to assess your progress and your results every month and perform quarterly reviews to refine your growth calculations.

Determine Your Revenue Per Customer Rate

When creating a small business marketing budget, it’s also helpful to determine your revenue per customer rate. While each customer or prospect will not buy your products or services each time they interact with your business, you may want to get an idea of how much profit each customer brings to the business overall. 

To do this, calculate your Average Revenue Per Customer or User (ARPU). Take the average revenue your business generates during a specific time frame (Ex: monthly or quarterly). Then, calculate your ARPU by taking that total revenue amount and dividing it by the total number of customers during the same timeframe.

ARPU = Total Revenue (per month, quarter, year) / Total number of customers (same timeframe) 

As a general rule of thumb, if your ARPU is less than $100, you’ll want to reign in your marketing budget and find more affordable ways to promote your small business. If you have a higher ARPU that’s, let’s say, in the thousands, you can likely afford to spend more on marketing and still make a profit.

Estimate ROI By Channel

When you start marketing your small business, you may want to try several different channels such as Google Ads, email marketing, search engine optimization (SEO), offline advertising, and community-building, just to name a few. It’s better to consider starting with a small budget per marketing channel and calculating your ROI as data comes in. 

If you’re going to start an email list, you can easily start tracking how many people open your emails and click on links. Depending on your email marketing platform and the type of business, you may even be able to track online sales. With your website, you can also install Google Analytics to track where leads are coming from, whether it’s social media, YouTube videos, or another metric. 

With a brick-and-mortar business, you can easily survey customers and ask how they found out about your business. Offer an incentive to complete the survey (Ex: a 15% off coupon or another free small gift) to redeem once they complete the survey.

Create Growth Projections to Allocate Marketing Spend

As you start to gather information about your ROI, reallocate your marketing spend to the specific campaigns that are yielding the best conversions. The best way to do this is by calculating percentages. 

So let’s say you find that 50% of sales are due to your social media marketing strategies. If this is the case, you may want to dedicate around 50% of your marketing budget to social media efforts.

It’s always important to leave some room in your budget for testing different channels or if marketing doesn’t perform as well at a given time. 

Summary

Investing in marketing is crucial in order for your customer base to grow and thrive. Creating a small business marketing budget requires careful planning, research, and analysis. By defining your budget, getting clear on your goals, and calculating your growth rate, you can ensure you see more ROI from marketing and further refine your strategies along the way.

_{Information provided on this blog is for educational purposes only, and is not intended to be business, legal, tax, or accounting advice. The views and opinions expressed in this blog are those of the authors and do not necessarily reflect the official policy or position of Lendio. While Lendio strives to keep its content up-to-date, it is only accurate as of the date posted. Offers or trends may expire, or may no longer be relevant.}