If you are a small business owner, you might have wondered at some point how much you should be spending on marketing? Are you spending too much? Too little? Do I have the right marketing budget for my business?

There are a number of sources you can use to get some guidelines for information like this. A very credible and often quoted source is the US Small Business Administration. The US SBA recommends spending 7 to 8 percent of gross revenue for marketing and advertising, assuming your revenue is less than $5M per year and your net profit is 10% to 12%. A variety of other sources give broad ranges — anywhere from just under 2% to around 8% for “advertising” expenses.

I reviewed an August 2019 CMO Survey.org which suggested that B2C companies – companies that sell directly to the consumer – spend a higher percentage of their revenue on marketing than B2B companies – companies that sell to other business. B2C companies who market services – such as a legal firms or accounting firms, tend to spend a higher percentage than those who market products. A similar relationship exists for B2B companies.

Unfortunately, there is no “one size fits all” answer to this question of what the right marketing budget should be. A business in its first few years of existence may need to spend more on marketing than a business that has existed for several years. There is an initial investment required to establish your brand differentiation and create a digital infrastructure you will use to deliver that message and grow. An established business may occasionally invest more than normal – for example, when launching new products, approaching new market segments, implementing a strategic shift with new messaging and associated support materials, or updating a tired website.

Practically speaking, many things impact the determination of what your “ideal” marketing budget should be. These can include your specific vertical, whether you sell directly to consumers or to other businesses, how mature your business is, your competitive position, how much competition is in your vertical or your geographic area, and what your business objectives are.

My suggestions:
• Create a checklist of all of the marketing tools you should have for your business. This should come from your marketing plan. This list should have been developed taking into account the factors mentioned above (business objective, competitive environments, type of target audience, etc.)
• Using that list, obtain estimates of what these services or tools will cost you and prioritize these. Understand whether these are routine investments (such as monthly ad budget) or periodic investments (such as a website updated every 2 years). This activity will give you a rough budget number.
• You can further refine this by developing a deep understanding of who your target audiences are. Explore the varied approaches that can be used to reach them and select the ones you believe will be most productive for your business.
• Layer on top of all of this what your competitors are doing. Estimate their investments based on what you know about their activities. If yours is a field where competitors are making significant investments to get business, your business may require an appropriately comparable budget to retain competitive position.
• Finally, a trusted marketing partner who has an understanding of what you need will be able to work with you to understand what might be able to be accomplished within the budget you have available. If you don’t have a marketing plan as a starting point, work with a marketing partner to develop a practical and executable plan that can move the dial for your business.

To sum up, while you can find guidelines on how much your marketing investment should be, you should not take them as absolute direction. Use them as a starting point and fine-tune your investment level based on your individual business needs and available resources.

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WSI Marketing Edge is a digital marketing consultancy. We create and execute practical plans for business owners who are looking to grow their companies. Contact us at: cahenderson@wsimarketingedge.com.