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What Should You Expect to Budget on Marketing as a Small Business?

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What Should You Expect to Budget on Marketing as a Small Business?

By Lauren Hong

There are a lot of “necessary” line items on your expense report as a small to mid-sized business owner. There’s your staffing; your utilities; your travel; your... marketing. Unfortunately, when it comes time to budget, it’s the marketing category that often draws the biggest question mark next to it.

Why is it so frequently the most disputed category? Most often, it’s because there’s not a clear idea of the return you’ll receive on it. But here’s the thing: when you budget and delegate those dollars correctly, your marketing spend will come back to your business in spades.

Where to start when budgeting for marketing

It’s tough to say what’s best for your business without being close to it, but in general, the U.S. Small Business Administration recommends spending 7 to 8 percent of your gross revenue for marketing and advertising, if you’re doing less than $5 million a year in sales and your net profit margin (after all expenses) is in the 10-12 percent range.

There’s a benchmark from which you can start, yet the truth is you’ll find marketing experts report recommendations all over the board when it comes to average spend -- anywhere from 2-3 percent for startups to 20 percent for highly competitive industries. The key to finding your sweet spot? Knowing the right questions to ask, tracking results, and adjusting until it works for you. Let’s get started.

(Believe us: if we could give you the answer in one sentence, we would. Bear with us!)

Questions to ask to decide where to spend your marketing dollars

Asking the right questions about where to spend your marketing dollars can unearth answers that will help you determine your overall marketing spend. Here’s a list of questions to get you started:

1. What are your most important lead-generation tactics? This is a good time to look at historical results to see which of your lead-generation tactics have performed best. Did last year’s email marketing campaigns see the highest conversion or was it the yearly gala that drew the most leads?

2. If you were forced to choose just one lead-generation tactic to focus on in growing your business, what would it be? Where do you get the most bang for your buck when it comes to the high-performing tactics you listed above?

3. How do you implement that tactic? Take a look at the strategy behind the actual implementation of that tactic. What goes into it? Consider the cost of it, including time spent by you or your staff.

4. How do you package the process around that tactic? It’s not uncommon for businesses to say they “do” content marketing or in-person networking. But when’s the last time you documented the process around it? It’s only when you detail out the steps it takes that you can eliminate the unnecessary and streamline for the best outcome.

5. How do you measure both the process as well as the results? You can’t improve what isn’t measured. Measuring the process and the results it gleans is what will allow you to refine it and save time and money in the long run. (Keep reading to learn more about how to measure those results.)

So, we just threw five seemingly simple questions your way that will deceivingly take some time to answer, and may inspire some work on your part. In case you’re wondering why, here it is: it’s the answers to these questions that will allow you to set some standard benchmarks and spend your money where it counts most.

Ways to measure the results of your marketing efforts

Once you’ve identified your highest performing marketing tactics and the cost it requires to make them happen, you can take the following measurements to truly benchmark effectiveness:

Cost per lead

Cost per lead measures the total spend versus the amount of leads generated, allowing you to compare which lead tactics are the most cost-efficient. (Keeping in mind that cost efficient and “cheapest” are not always synonymous.)

Marketing Tactic* Total Cost
(6 months)
Total Leads
(6 months)
Cost Per Lead
(Cost/Total leads)
Trade Show $10,000 100 $100

Cost per sale

Cost per sale measures the total spend versus the amount of actual sales generated, proving which marketing tactics attract buyers

Marketing Tactic* Total Cost
(6 months)
Total Sales
(6 months)
Cost Per Sale
(Cost/Total sales)
Trade Show $10,000 10 $1,000

Return on investment (ROI)

Your return on investment is based on your gross sales divided by the total cost of acquiring those sales.

Marketing Tactic* Total Sales
(6 months)
Total Cost
(6 months)
Gross Sales
(Total Sales x Total Cost)
ROI per $1
(Gross Sales/Total Cost)
Trade Show 10 $10,000 $100,000 $10

While determining the ROI is the overall goal of any marketing measurement, the way you go about getting there will largely depend on the goal of your marketing, and how it aligns with the overall goals of the business.

Why the work? Zeroing in on your most effective lead- and revenue-generating tactics will allow you to systematize and measure them, so you can factor in the total cost when determining that dreaded marketing budget.

Don’t ignore inbound

Let’s take a little detour: your marketing budget will likely include a mix of outbound marketing (think: print media; TV  advertising; etc.) and inbound (i.e.: content marketing and social media). These days, with our constant access to the internet and consumers’ desire for permission-based, earned marketing rather than that which is pushed at us, your budget will likely include more of the latter.

The good news? Not only are inbound tactics more likely to keep prospective clients, referral sources, and current clients top of mind, but they also generate an average of 54 percent more leads at half the cost.

Planning for a (profitable) future

The most important thing in budgeting for your marketing is that all of your tactics -- both inbound and outbound -- support an integrated marketing strategy that supports the overall goals of your company. Market with a purpose so you can budget better. It’s what we help you do at Out & About.