How to Choose a Marketing Budget

By Courtney Thompson

Table of Contents

You’ve probably heard that marketing is not an add-on expense: it’s an investment in growth. But as a small business owner, you probably feel the tension between meeting vital needs like payroll, lease, etc. and investing in your marketing. This is where a strategy based marketing budget can give you the confidence you need to invest in your growth without sacrificing other budgetary considerations. 

But before we get into how you should choose your marketing budget, let’s briefly consider why a marketing budget is important. 

Why You Need a Marketing Budget 

Many small business owners make one of the following marketing budget mistakes: 

They allocate too little to their marketing budget. Then when the marketing doesn’t work because they didn’t invest enough to get the gears turning properly, they claim the marketing is wasteful.

Or they reason that they’ll invest later once their business has grown. But that’s like a taxi driver opting to put gas in their tank once they have more customers – when they need the gas to get the customers in the first place. 

Or small business owners fail to establish a strategic marketing plan based on audience analysis and other key considerations. So they spend their marketing budget in ineffective channels and claim that marketing doesn’t work – so why invest?  

But setting a realistic marketing budget for your small business – based on a well thought out strategy – is vital for the long term success and growth of your small business. Allan Dib in The 1-Page Marketing Plan argues, “Leverage is the best kept secret of the rich…By far the biggest leverage point in any business is marketing. If you get 10% better at marketing, this can have an exponential or multiplying effect on your bottom line.” In other words, you gotta spend money to make money.

Investing in marketing isn’t an option if you want to grow. And here’s how to set a marketing budget that will enable you to realistically and sustainably achieve that growth. 

Marketing Budget Numbers: Not from the Sky

The first rule for creating marketing budgets is NOT “you don’t talk about the marketing budget.” Neither do you just pull a number from the sky that feels comfortable to you. Thankfully, there’s real research and statistics on what small businesses owners should expect to spend on their marketing. And, these budgets are always based on a percentage of your gross annual revenue.

  • Start-Ups or New Product Launch

You should plan to spend 25-35% of your projected revenue on marketing. That’s a big number because you have a big hill to climb for establishing a customer base. And a large upfront investment will yield large dividends later because the more customers you have quickly, the sooner you’ll reach profitability. 

  • Established Growing Business

You should budget 12-18% of your revenue for marketing. Aim for the lower percentage if you’re niche with light competition. If you’re in a high competition industry (like dentistry, for example), you should put that number closer to 18%. 

These percentages come from Small Business Marketing Tools, and the average small business spends vastly less. According to Small Biz Trends, the average percentage spend on small business marketing is 1.08% of revenue! Yikes! 

Imagine the growth possibilities if you made a solid investment in your growth! 

And here’s the thing: Especially if you’re a low margin business like a retail store, no one is forcing you to spend 12% of your revenue on marketing. But if you spent more than 1.08%? Wow, you could grow. 

Need Help Determining Your Marketing Budget?

Marketing and finance go hand-in-hand. That’s why we founded a finance and marketing company. If you spend the right amount on strategic marketing, you can see growth so your finances will increase, which means you can invest in more growth, pay your employees more, hire more employees, etc. 

But choosing a realistic marketing budget still might feel overwhelming. Our finance experts can walk with you through your finances and budget process to help you confidently determine a marketing budget that will help you grow. 

Developing a Strategic Marketing Budget

Here’s a scenario: You want to grow your small business and you’ve heard digital marketing is the way to do it. So you dip your toe in by asking your millennial employee who does the Facebook to create a Facebook page for your company. And your neighbor’s kid got a degree in communications this year so you ask if they can build your company a wordpress site real quick because they must know what they’re doing. You even decide to spend a TINY bit of money on Facebook ads to see if there’s anything there. Digital marketing. Boom, you did it! 

But you don’t see any rise in revenue. So clearly this digital marketing doesn’t really work so you don’t spend any more. And why would you? 

Too many small businesses approach marketing without a strategic mindset backed by audience research, messaging analysis, positioning analysis, and more. Without a marketing strategy, your money will be spent willy-nilly – in channels that might not be the most effective with messaging that doesn’t even speak to your audience. 

For your digital marketing budget to really be an investment in your growth, you need to take the time to develop a marketing strategy. Otherwise, it won’t matter if you spend 1% or 25% of your revenue on marketing – it will be a waste. 

You have a few options for developing your marketing: 

Whichever you choose, developing this strategy is an investment in your time. But, man, it’s worth it. It will give your marketing clarity and purpose as well as prevent wasted time and money.  

So How Much Should You Spend On Facebook & Google

You’ve got to start somewhere with Google Ads or Facebook Ads. Where do you set your marketing budget on a new digital campaign? Google recommends that you start small–anywhere between $300-$1,500 per month to start, ($10-$50 per day), and adjust accordingly. 

They aren’t wrong. Starting with a small budget and then adjusting your campaign, testing with a/b ad sets, location monitoring, all based on solid keyword research is a great beginning. A word of caution though–the low side of that starting test number–$300–takes a lot longer to gather algorithmic data than the higher side. If you’re looking to ramp up a little quicker, consider spending a little more.

Marketing Budgets in a Recession

I’m no economist, but it almost always seems like there’s talk of a recession around the corner. And this year is no different. For the small business owners and marketers like me who remember the 2008 recession, talk of a recession leaves us feeling a little queasy.

 And in the midst of making necessary recession budget cuts, it’s tempting to slash or completely eliminate your marketing budget. But I and this guy from Forbes highly recommend NOT doing that. Here’s why.

Many of your competitors will probably cut their marketing budgets, meaning their brand will make less noise. Giving you the opportunity to take more of your customers’ attention. 

Continuing to market your company will help your loyal customers feel reassured that your business isn’t going anywhere anytime soon. And thus maintain their business through the recession.

The Forbes article linked above lists centuries worth of evidence in favor of maintaining or boosting marketing budgets during a recession. But if you’re still not convinced that’s the right move for your company, one of our finance experts would be happy to speak with you. Rather than a complete cut or a boost, your business might be better served by a modest cut back in your marketing budget: a completely reasonable option. 

Ready to choose your marketing budget? 

Allocating a realistic amount of your revenue into your marketing budget will yield dividends for your business growth in the future – especially if you approach your marketing with a long term strategy in place. As a finance and marketing business consulting firm, we can help you set a budget that works for your financial comfort and your growth goals. And our team of marketing experts can walk you through building a marketing strategy that will give purpose to your financial investment. 

Are you ready to get your business growing? Let’s talk