Marketing Budgets: How Much Should My Small Business Spend on Marketing?

Here are six baseline budgeting frameworks you can use to determine the best marketing budget allocation for your small business:

Many small businesses grapple with the idea of spending too much–or too little–on marketing. Just between you and me, there is not a one-size-fits-all solution. Your small business is unique. As such, your marketing objectives, strategies and tactics will be also.

Every small business owner would love to have an endless marketing “money tree.” But the reality is, bigger budgets aren’t the answer. Especially if you’re not sure what works (i.e. proven tactics tied to data-driven success metrics).

In a past (corporate) life, I was tasked with the stewardship of  over $25 million in annual global marketing and media budgets to drive performance-based initiatives and sales. Today as an entrepreneur, I’ve found that those same Fortune 500 strategies can be simplified to drive top-line results for small businesses.

Benchmarks, Best Practices and Your Business

When entrepreneurs ask marketing agencies, “What should we spend on marketing?” they’re often met with an assured response: “We recommend that you spend 30%!”

Personally, I am always leery of marketing consultants and well-meaning individuals who pull random budget percentages from the sky. While there are industry-based percentages that can act as a gauge or benchmark — there is no finite rule.

For instance, the CEO of a software company that has been in business for 5 years may tell you that he spends 20% of his revenue on marketing. However, if you’re a bakery shop owner that’s been in business for 10 years, or an e-commerce clothing startup down the street, that percentage may not be appropriate. More importantly, various marketing tactics are more cost-effective than others. As such, a small business that chooses online marketing in lieu of radio and television promotions will reap cost-benefits– driving their budgets down significantly.

So when you meet your next “percentage-touting marketing guru” your follow-up question should always be: “Why should we spend this amount?” It is your responsibility to hold marketing agencies– even consultants or friends (with sage advice)– accountable.

How to Set Better Marketing Budgets

As a successful small business owner, your job is to develop budgets — not just spend them. When you develop a sound marketing budget, it is easier to hold your team accountable, make your dollars work harder and fix what isn’t working down the road.

With a clear understanding of your business situation, and marketing plan, there are six baseline budgeting frameworks you can use to determine the best marketing budget allocation for your small business:

1. Zero-based (Task-based)
Task-based budgets are determined by estimating the cost required to achieve specific marketing objectives. This method is ideal because it is directly linked to your company’s objectives. But it is also very demanding — requiring specific and measurable goals. Your assessment of “what it takes” relies on your evaluation of how marketing will impact your target audience.

 

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