Marketing budgets aren’t just for big businesses with full-on marketing departments. Businesses of all sizes need one, too—that is, if they’re in the business of attracting customers.
So whether you’re a team of five, fifteen, or just one business owner who wears many hats, a marketing budget is a must.
Let’s get planning.
Why is a marketing budget important for small businesses?
A marketing budget is crucial to ensuring the success of your business—and not just how many customers you attract.
Because small businesses often have smaller budgets, they need to make sure they’re allocating their funds and resources in the right ways. For example, without a marketing budget, a small business might sink too much money into a seasonal campaign, leaving little funds in the marketing budget for the rest of the year. Without knowing where, when, and how much to spend, business owners can miss out on key opportunities in the future.
Small businesses also need marketing budgets for another big reason: to ensure their promotional expenses don’t end up hurting their profits. This is why it’s so important to know what you want to achieve, what it takes to get there, and how that impacts the rest of your budget before investing too deeply.
In a way, a marketing budget is like a recipe for a delicious meal. In order to get the taste just right, you need to follow the steps, ingredients, and quantities. Sometimes, you might even have to make a few adjustments. But without the original recipe, you’re just throwing things at the wall to see what sticks. And as we all know, that only works for pasta.
What’s an average small business marketing budget?
The average small business marketing budget depends on a few things: the type of business you operate, the industry you’re in, how long you’ve been in business, and how much revenue you bring in. That said, in 2023, it was reported that the average marketing budget was 9.1% of a company's overall revenue.
Seasonality and world events also play a part in spend. For instance, according to this 2022 Deloitte CMO Report, marketers reported an increase of 10.4% in marketing spending over the last year, but it was predicted that this number would drop to pre-pandemic levels of 5.8% in the following year.
When you create your own marketing budget, consider your goals, who you’re trying to reach, and what you want to achieve. Starting with these questions will help guide you to those final numbers.
6 key tips to determine a marketing budget for small businesses
A marketing budget is more than a set of numbers. It’s based on goals, the market, your audience, past performance and current marketing costs. Let’s review.
1. Determine your marketing goals
Determining your marketing goals is more complex than you think. It’s not just about growing or bringing in new customers, but determining how you want to do that and how to do that realistically, and—you guessed it—within budget.
For example, if you’ve just launched your business, you’ll need to be clear on your target audience and what you want from them: is it realistic to expect new customers to join a loyalty program? If you launch a paid campaign on social media, is your brand message easy enough to understand, attract, and create action? How do you define action?
Asking yourself a series of questions that lead up to your end goal can help understand what you need to invest. Breaking it down can help you stay on budget or pivot when necessary.
Pro Tip: Create SMART goals—Specific, Measurable, Achievable, Relevant, and Time-Bound ones that will help you stay on budget and within a timeframe.
2. Know your revenue
When determining your marketing budget, you first need to know how much revenue you bring in. Most small businesses spend between 2% to 5% of their revenues on their marketing, but like we mentioned above, that all depends on what you’re trying to achieve, the market that you’re in, and how long you’ve been in business.
When you take this approach, you’ll notice that your marketing budget will increase as your sales do. But if you’re just starting out, keep in mind that your marketing budget will likely be disproportionate to your sales—at least for a while.
3. Perform an industry and competitor analysis
If you’ve put together a business plan before, you probably know a bit (or a lot) about the industry you’re in and the competition out there. When you’re building your marketing budget, you’ll want to take a look at both of these aspects, too. Utilizing a business plan template can streamline this process and ensure you cover all necessary details.
When you analyze your industry, you will find out how your customers shop, where they live, what they’re looking for in a brand and product, their income, and more. You can also see marketing spends based on needs.
For instance, if you're a B2C business, you might notice more money being spent to make up for hitting customers on various channels and you don’t have a team reaching out to prospects, like a B2B business would.
When you look at your direct competitors, you can see where they’re spending their, and even get an idea of how it’s working out for them. For example, if your competitors are investing in a social media strategy, take a look at their engagement: comments, likes and shares. This level of intel takes time, but it can pay off, giving you big insights into how to market your own business.
4. Understand your target audience
Understanding your target audience is more than knowing where they live, where they shop, and what they do for fun. It’s about truly understanding what makes them tick and then applying that to what makes them click.
When you get into the minds of your customers, you can start to understand their pain points and develop unique ways to market your business and its products/services as a solution. You’ll also learn where to do this: online, at networking events, or in the newspapers.
Knowing where your customers go can help you determine where your budget goes.
5. Consider marketing costs
Marketing budgets come down to a combination of costs. Sure, you’ve got your ad spend, but you’ve got to think about everything you need to get you to that point and then beyond it.
Account for production costs like photography, design, print, and copywriting; software needed to create and schedule content, send out emails, and provide analytics; and the team you might need to put your marketing budget into action.
By taking your SMART (Specific, Measurable, Attainable, Realistic, and Timely) goals into account, you’ll come out with a list of tactics that can help you determine the costs associated with achieving them and how to do so for the most ROI.
6. Assess previous marketing performance
They say history repeats itself, which is one good reason to take a look at your past marketing performance before committing to a marketing budget.
This can show you how well campaigns have done in the past and what to repeat (or what not to) in the future.
For example, if you focused on out-of-home (radio and print) and didn’t see the pick-up that you expected, you can decide on a new channel for your audience this time around. This is where the previous step of knowing who you’re targeting and where they are comes in handy!
It lets you build the most effective plan for your budget and vice versa.
How to scale small business marketing on a limited budget
Not every marketing budget is big. And that’s okay!
There are ways that you can scale your small business marketing budget, even when it’s limited, like experimentation. But before you move to the lab, stick with these tips to keep yourself on target.
Set goals for yourself: This helps you stay on track to achieve your end goals. It can also help keep you hyper-focused on the details to get you there. Your end goal could be engagement, sales targets, clicks, or shares. Knowing the specifics can help you understand what’s working for you so you can do more of it.
Forget about “going big”: When it comes to small business, you can throw out that old adage of “go big or go home.” Don’t be worried about starting small or going digital-only. Depending on your audience and your brand, that might even be the better option.
Monitor results closely: Track results as you go. This will help you understand when you need to pivot or invest more if something is working.
Figure out what’s next: You always have to be thinking about tomorrow. If something performs well, think about how you can do more of it, how much it will cost, and how much you expect to get out of it.
How to get the most out of a small business marketing budget
When you’re faced with a small marketing business, it’s critical to learn how to maximize its ROI. Here are ways you can do just that:
Segment and target the right audience: Don’t worry about hitting every single customer. Focus on a demographic and then target them where they are. If that’s Gen Z, maybe that’s social media instead of a print ad. The more focused you can go on your demographic, the more specific you can get in reaching them.
Leverage data for optimizations: Marketing software can help you get a better sense of traffic, clicks, subscriptions, and more. Their dashboards can provide you with a high-level overview to understand if things are working and then decide how to leverage them.
Outsource accordingly: If you need support, look for freelancers or software solutions that can make life (and marketing) easier for you. For example, tools that can automate emails or services that make online payments get to your bank account faster can all make a difference in your marketing plans, budgets, and how you track them.
If something isn’t tracking where it needs to, cut it, change it, or try a new tactic. And remember to track that one, too.
Get started on building your small business marketing budget now
A small business marketing budget is one of the first steps to showcasing your brand to the world. But remember: you don’t have to reach out to every single human on the planet.
Focus on setting realistic goals, then make a plan to achieve them within a targeted audience. Don’t be afraid to pivot if the data tells you to do so or to invest more heavily into a tactic that’s working.
Track your results as you go, and always be thinking about what’s next. Your marketing budget can grow as your revenue does, so you always want to have an understanding of your success.
Analytics can help with that understanding and softwares can automate and simplify how you communicate with customers, track results, and even bring in payments quicker than you can say “pivot!”
