How Much Should I Spend on Marketing?

“A budget is telling your money where to go instead of wondering where it went" - Dave Ramsay

Who is this guide for?

This guide is for small businesses who want to create a marketing budget, build confidence in their marketing efforts, and experience growth and increase profits. The key topics focus on some of the most common questions and concerns small businesses have when it comes to creating an affordable marketing budget and strategy, and how that can be leveraged into building long lasting customer relationships.

Key Topics

  • Why you should have a marketing budget
  • What percentage of your overall budget should you allocate towards marketing?
  • Budget allocation for long term marketing strategies
  • Budget allocation for short term marketing strategies
Close-up image of human hand and pot with money tree

Why you should have a marketing budget

Marketing helps small businesses understand who their customers are and what they truly value. Small businesses can gain insight into their buyer’s perspective and quickly learn what works, what doesn’t, and which products or services will put them ahead of the competition.

Marketing helps small businesses achieve the following:

  • Establish brand identity and maintain brand awareness.
  • Connect with the right audience and understand the products and services that will fulfill their needs while providing profitability to the company.
  • New product development
  • Customer experience improvement
  • Position themselves as an industry thought leader, building trust and long-term relationships.
  • Convert digital customers into leads and sales.

According to a recent survey of 350 small and medium business owners, 50% did not have a marketing plan. (1) Without even the smallest investment into marketing, small business owners can fall behind the competition and find themselves in an uphill battle to increase brand recognition, company growth, and revenue. By creating a marketing plan and marketing budget, small businesses can compete with larger companies. If your competition is already using marketing, why not you?

According to Demand Metric (2):

  • 82% of customers feel more positive about a company after reading custom content
  • 70% of customers feel closer to a company as a result of content marketing
  • On average companies with blogs produce +67% leads per month


What percentage of your overall budget should you allocate towards marketing?

One of the biggest questions small businesses have is, how much should I spend on marketing? Your marketing budget should include all costs for marketing, promotions, advertising, overhead costs, and anything else that will contribute to marketing on a day-to-day basis. Take into consideration all the technology and resources you use for marketing.

It is important to keep in mind that a marketing budget for a small business will also depend on the way your budget is structured, which industry you are in, and the capital available to you. Most businesses choose to allocate a percentage of their gross annual revenue on marketing. (5).  Usually this percentage is anywhere from 7 - 10% of gross revenue.  However another approach that is increasingly popular is to use a zero based budgeting approach.

What is zero based budgeting?

Zero based budgeting involves creating a new budget from scratch every year.  Rather than assigning a certain % of revenue to marketing, with zero based budgeting, the marketing budget is created based on the annual marketing plan.  

How this works: Once you have established what the lifetime value of one customer is to your business, and benchmarked your customer acquisition cost, you can calculate how many customers it will take for you to achieve your marketing objectives and get a return on your marketing investment. 

Create your marketing plan, establish your objectives, outline your marketing campaigns or tactics and carve out your budget based on the tactics you need to roll out so that you have built in an estimated return on investment that is at least 3 times your spend. 

With this approach, your budget is now based on the anticipated revenue you expect to achieve based on your marketing goals rather than allocating a fixed percentage. 

For example, if the lifetime value of one customer is $1,000, and your average customer acquisition cost is $50, the ratio of lifetime value to customer acquistion cost is 20:1.  That means for every $1 you spend, you receive $20 dollars in revenue.  

Let's say one of your marketing goals is to double the number of new customers from 50 to 100.  The estimated cost to launch this campaign is $10,000.  However the total potential increase in revenue is 50 X 1,000 = $50,000.  

When you carve out your marketing spend based on your marketing plan, you are much more focused and judicious in how you spend your marketing dollars.

Once you have established your annual budget, consider how much of your budget will be allocated towards short term acquisition vs. long term brand building activities. Ideally you want to invest 50% of your marketing budget into long-term strategies. This 50% investment will help ensure you have a budget set aside for long-term future growth.

Long-Term Marketing Strategies

There is no quick magic trick to creating a successful marketing plan. Long term and short-term marketing strategies are needed to achieve growth and a return on investment (ROI). Long term marketing allows small businesses to gradually increase their brand reputation, engage with their customers on several different platforms, and deliver marketing content that creates a lifetime customer. Some examples of long-term marketing strategies you can include are:

  • Invest in new product development
  • Improving Customer Experience
  • Mass advertising – For small businesses consider mass advertising in publications and media channels tailored to your specific market to maximize your budget
  • Website – A powerful and creative website will help your customers feel more comfortable with your brand as they navigate and learn more about you and your products or services.
  • Social Media – Social channels including Instagram, Facebook, and Linkedin are free to use, making social media the great equalizer. With over 72% of people using some form of social media, small businesses have the power to influence a wide audience. (3)
  • Video Content – Video content is one of the most valuable components of a marketing plan. Did you know that 85% of the US internet audience watches videos online? The 25-34 age group watches the most online videos and men spend 40% more time watching videos on the internet than women. (4) Videos can engage, tell a story, answer a question, or simply let your customer who you are and what your small business represents.
  • Blogging – Creating content and posting on a blog facilitates thought leadership. You can provide helpful resources, tools, FAQ’s, and more. You can also have featured guest posts, which helps both parties reach a broader audience. Building a successful blog takes time and patience but offers long term rewards in the form of passive top of the funnel lead generation that generates qualified leads, opportunities and sales.

When looking at your long-term strategy, distribution is key. Consumers look for content on several different platforms. If you can diversify and fill multiple marketing platforms with resources, blogs, videos or more you’ll be able to attract a larger consumer base while getting the most impact out of your marketing content.

Short-term Marketing Strategies

Short-term marketing strategies are campaigns run in short bursts of time and can include tactics such as promotions or surveys. Short-term marketing strategies can help temporarily boost business and traffic. Here are some of the examples of short-term marketing:

  • Promos featuring free services, discounted pricing or giveaways – This creates an excitement and buzz that encourages customers to dive into a purchase they have been contemplating. You’re also creating a happy customer who will inadvertently become a brand ambassador by letting coworkers, friends, and family know about the great deal they received.
  • Digital Advertising – Advertising on Google or through paid social media helps companies serve their products or services to the right audience for short term acquisition.
  • Online Contests or Surveys – This short-term marketing strategy increases the number of new potential leads.
  • Email Marketing – Allows you to nurture a customer or prospect throughout their entire journey from pre to post sale. Email marketing also allows a small business to provide consistent outreach to customers, even when they may not be active in the purchasing process.
  • Webinars - Hosting your own webinar for customers is a terrific way to get to know and connect with them at a personal level.

It is advantageous to keep both short-term and long-term marketing strategies in mind when you allocate your marketing budget. Splitting the marketing budget down the middle and earmarking 50% of your budget to short-term marketing will allow you to position your business for both short term and long term success. You want a well-balanced marketing budget that allows for current profits to sustain the company as well as future growth.

If you need more guidance on building a marketing budget for your small business, we can help. Schedule a meeting or send us an email, and together we can strategize on how we can best support and grow your business.


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