6 Steps To Determine A Small Business Marketing Budget
Our Process For Determining A Market Budget Is Proven & Backed By Stats
Most small business owners know the importance of digital marketing. However, many often have trouble getting off the runway due to a variety of reasons. Such reasons include a lack of product knowledge or failing to define attainable goals. Therefore, business owners who lack these understandings do not start running campaigns or abruptly stop marketing online. As you may know, digital marketing focuses on sustainable, long-term growth rather than short-term results. Therefore, you need to give your efforts time in order to produce results. Nevertheless, another reason many business owners do not start marketing online is that they never answer the question, “How much should I budget to market my small business?”.
Determining a marketing budget for a small business
The rest of this article will give you the guidelines necessary to answer this question. However, I’ll tell you right now. Figuring out how much your small business should budget for marketing is easier than you’d think.
1. Understand the business that you’re in
The first step to determining a marketing budget is to understand the business that you’re in. By doing so, you can select the marketing products that you require in order to see results. Questions include:
- What products/services do you offer?
- What kind of marketing have you been doing so far, if any?
- If you haven’t been marketing your products, how could you see your products or services being marketed successfully?
- What is your industry’s landscape like?
- What do your competitors do for marketing?
- Have they been successful?
Once you have reflected on your business, you will be able to define more specific (and attainable) goals at the end of the process. In addition, you will better understand how much advertisement will cost. Typically, an advertisement’s cost is in alignment with the potential value you stand to gain from a new customer.
2. Understand your customers
After you have an understanding of the competitive landscape of your business, you need to reflect on your customers. Questions to ask yourself include:
- What are my customers like?
- Where do my customers like to receive communication?
- How would they react to a certain form of marketing from my business?
3. Outline your goals
With a better understanding of your customers, you can now outline your goals. Questions to ask yourself include:
- Which channels do I want to implement?
- To what extent, do I want to influence a purchasing decision through a certain channel?
- Do I want to generate traffic to my website?
- Based on how many customers I have per month right now, how many customers do I want?
4. Use marketing budget industry benchmarks
According to the U.S. Small Business Association, the benchmark for a small business marketing budget is 7-8% of gross revenue. While this is only a benchmark, you can use this range to determine a lower end and higher end target budget. For your lower-end target budget, multiply your monthly average revenue by 7%. For your higher-end target budget, multiply your monthly average revenue by 8%. This will give you a base understanding of the marketing budgets of small businesses.
5. Reconcile with your needs
Benchmarks are helpful in that they give us a point of reference when making decisions. However, budgets are subjective to the needs of the business owner. Depending on your industry, current brand awareness, and business’ goals, you’ll need to reconcile your needs with a budget that works for you. In fact, marketing budgets greatly vary between industries (WSJ).
Based on your needs and costs, we recommend that you determine a base percentage of your monthly average revenue that you allocate to marketing. Since your needs are specific to your business, use the ‘target’ range calculated in the previous step as a reference.
6. Repeat as your business’ needs change
Although it is good to have a base percent of your revenue that you allocate to marketing efforts, your needs will change. As a result, your goals should change as well. For example, you will have different needs if you are starting a business than if you are already established and generate substantial revenue. As for the business starter, you will need to build a website and generate awareness of your products and services with paid search and social advertising. If you are an established business owner, then you will need to turn the value of your existing customers with SMS marketing and extend your reach with ads on social platforms or paid search ads.
As you can see, your needs will evolve as your business progresses. Your marketing budget should evolve as well. Therefore, you should continually repeat the steps outlined in this article and ask yourself the questions listed in each step so that you define a marketing budget that fits your changing needs.
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