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  • Writer's pictureNat Sharp

How much should I spend on marketing my small business

Updated: Oct 14, 2021

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Preparing and owning a marketing budget is essential for small businesses. Without a marketing budget, you’ll run the risk of over or underspending on marketing.

But it can be incredibly hard for businesses to decide how much to spend on marketing and how to allocate the money. Using my experience running marketing departments and also managing budgets for my clients, I've put together some tips to help small businesses with their budget planning.

Why prepare a marketing budget?

Lets start with the looking at the numerous benefits that budgeting can bring. A carefully devised marketing budget can help with:

  • Focus – it will help you focus your efforts, thinking about things more strategically and ensure you spend quality time planning. Plus a budget will enable you to prioritise essential areas of spend. Often when I work with my clients I help to attribute objectives to the spend and even colour code by priority to flag essential expenditure.

  • Savings – it may sound strange, but preparing a budget will save you money, ensuring you procure goods and services at the best price and achieve economies of scale by bulk ordering. You can even draw up contracts to include all the deliverables for the year and negotiate based on the total spend. A contract is not only best practice, but it will protect all parties involved and ensure there is a clear paper trail listing out roles and responsibilities.

  • Cashflow – it will also aid your business finances. If you have any large expenditure, it is important that finance/your accountant is aware of this in advance and you can spread out expenditure throughout the year.

But how much should I budget?

The first question I always ask a client is, “Do you know what your budget is?”. It is not uncommon for businesses to genuinely not know so don't feel afraid to get some expert help.

There’s no hard and fast rule as to how much money a business should budget for marketing. It really depends on the stage of your business, your profit margins, industry sector and of course your revenue. However, there are some principals you can follow to make it easier for you.

But, before you start drilling down the detail, there are some basic questions I tend to ask my clients when working out budgets…

  1. What did you spend on marketing this/last year?

  2. Did it deliver a strong ROI?

  3. What are you planning to achieve next year?

  4. Do you want to achieve the same growth?

  5. What is the state of your market?

  6. How much competition is there?

  7. And lastly what is the absolute maximum you can you afford to spend?

For start-up businesses, a larger budget is advised using 10 to 20% of your projected revenue on marketing. For more well-established businesses (over five years old) 6 to 12% of your projected revenue is recommended.

The CMO Survey compiled by Deloitte Digital, revealed on average marketing budgets are 11% of total company budgets. You can see how this breaks down by sector in the graph below.

Source: The CMO Survey and Deloitte Digital

While this may seem like a lot, remember new and emerging brands are looking to capture new market share and develop brand recognition with an audience that has absolutely no idea who they are.

How do I slice up my budget?

Sponge cake decorated with sprinkles and sugar stars

Your marketing budget should be part of the planning process and be an important part of your marketing plan. This is because your budget should align with your business goals as opposed to being a list of separate tactical activities.

Your marketing budget should include all your anticipated expenditure for advertising, product enhancements, distribution, merchandising and events. Small businesses now spend nearly half of the marketing budget on digital channels and SEO and pay per click advertising can easily absorb half of your overall budget . Many businesses also include staff costs in their budgets.

The CMO Survey shows how marketing budgets have been allocated in both B2B and B2C, as a proportion of their total marketing budgets. You can see how this breaks down by sector in the graph below.

Some simple tips

  • If you have access to one, study the marketing plan and budget from the previous year. Select the projects you will continue in the coming year, or those costs that are ongoing. Add projects that you know will be necessary, including new products you will introduce, any marketing research or additional advertising you need.

  • If you are starting from scratch start to think about the development costs you will need to invest in from market research, software investment, website costs, copywriting, design costs and branding. Then start to think about the execution costs and all the channels you wish to use from social media, SEO, PPC advertising and advertising.

  • Dependent on the size of your business, it is worth meeting with other departments in your organisation to understand their plans and the subsequent costs.

  • You may need to obtain some speculative quotes from suppliers so allow time for this

  • Also allow for cost increases from suppliers for the year ahead

  • Have a contingency budget and be prepared to adjust your budget during the year. Expect new projects and expenses to arise from other departments.

  • Lastly phase the costs throughout the year based on when you will incur the costs.

Ensure you achieve your goals

Hand holding jar of coins with plant growing on top

Now that you’ve created a marketing budget commit to it. Many new business owners get nervous and pull back on marketing when sales decline. Marketing is absolutely essential and is what will help grow your sales. Without marketing, it will be hard to scale your business. A budget will help you to spend wisely as you build up your business. Also, remember by creating a realistic budget, you can work toward your specific business goals.

There are many free marketing budget templates you can use as a guide. Blog spot provides a vast array of templates from a master budget to content and event budgets.

And remember, for your budget to be truly effective, it needs to work alongside your marketing plan. Read more on how to develop your marketing plan.

Do you still need some further help with your marketing and not sure how to take your marketing to the next level? Then please feel free to drop me a line and we can set up a 30-minute free consultation.

Coin Image credits J Comp

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