January 31, 2022
January 31, 2022
“A budget is telling your money where to go instead of wondering where it went" - Dave Ramsay
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.
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:
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):
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.
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.
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:
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 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:
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.
