Marketing budget: how much *should* a small business spend?
Hands down, the question we get asked the most is about marketing budget – how much a small business should spend on its marketing. And unfortunately, it’s one of the few questions for which there is no concise answer.
If you ask the great question-and-answer-box of the internet, you’ll get answers ranging from about 2% of revenue to about 11% or 12%, depending on who you ask, how new your company is (traditional wisdom says you need to spend a higher percentage as a young company both in order to become established and because your other overhead items, like payroll, are often lower), how big it is, whether it’s digital, brick and mortar, B2B, B2C, or whether you have an office cat or not (I kid on that last one).
Let me try to do some actual helping, here.
First: while well-funded companies have more flexibility, understand that as a really small business, a really young business, a mom ‘n pop, a single-shingle, a bootstrappin’ startup, or a solopreneur, the stats above aren’t super helpful. Your business isn’t going to run the way something with deeper pockets will. While it’s a really great idea, for instance, to spend a larger percentage of your revenue on marketing when you’re first getting going, if you’re literally funding yourself with your credit card, you may not have that luxury.
What we advise clients is to start with what they think they CAN afford, and then test until they have a level that works for both their business budget and their marketing efforts. In other words, test until you’re spending enough to bring in new customers without running at a constant deficit. We also are great believers in flexing marketing spend with seasonal and business cycles, if necessary.
Sure, this isn’t a simple answer. But, as a wise adviser of mine once said, “there is no should”. You need to do what’s best for your business, not what the Small Business Administration says small businesses “should” do.
But where do you start developing a working marketing budget?
As I said, what can you afford? What amount can you keep up for at least a 6-month runway before it starts to really bring in customers? Realistically, you’re going to need at bare minimum $100-$200 a month per platform (a platform refers to a particular marketing effort, like Facebook ads or search engine marketing) to make any dent, but if all you can afford is just that $100/month, that’s fine. Build your marketing strategy off of that, but plan on increasing your spending as you achieve more revenue.
But then pay attention to how things are performing. Remember, in order to get to sales you need to start with a large pool of people (your target customer group)—and once those people have seen your ad several times, a small percentage will visit your website, and from them, an even smaller percentage (we’re talking single digit, here), will call/submit a lead/visit your business/buy something. If you’re spending too little on your marketing, then your target customer group isn’t seeing your messaging/ads enough to register. So if you turn things on and you’re not seeing any activity, you may need to increase your budget.
Once you have a baseline (this is the joy of digital marketing), you’ll get a feel for how much spend on which platforms results in how many new customers. Then you can work backwards from your revenue goals to set a good marketing budget. Marketing isn’t a mysterious black box these days. You can track what your spend is delivering.
Marketing budget woes: can you spend too little on marketing?
Absolutely. As I said above, if you spend too little, you’ll be spreading your messaging/ads too thin and won’t get the results you need. This recently happened with a client of ours who wanted to start with $1/day on Facebook ads; at that budget, nothing happened—but when we bumped it up to $2/day the web traffic suddenly picked up. You also need to spend enough to have quality marketing (your website, good ads, possibly photography, etc); if you cheap out on the important things you may hamstring yourself.
Handy tip: if you suspect that too little budget is behind a non- or under-performing marketing program (here’s a guide to troubleshooting), try reducing the size of your audience by adding more targeting parameters or reducing the size of your geographic reach. This will allow you to get a better saturation of your market.
Can you spend too much on marketing?
Assuming that a) you have a well-thought-out marketing strategy, targeted messaging, and a good website, b) you’re not going to go bankrupt doing it, d) your campaigns are optimized and efficient (stay tuned, or subscribe below, for our next post on this very subject) and c) you have the staff/production/infrastructure to handle rapid growth, then no, probably not. Marketing is one of those things that—again assuming you’re doing it right and there aren’t other factors at play—the more you spend the more you get. Let me rephrase that: if you spend more, you get more customers.
Before you go out and mortgage your house to plump a ton of cash on your marketing program, however, remember to always scale your marketing with your service and support capabilities. We’ve seen businesses make big investments in things like Groupon, only to be so slammed with discounted customers that their customer service and response times suffer. And the resulting negative reviews will haunt you forever.
One final thought: it’s our experience that you’ll actually need to spend more than you think you will in order to get things moving on the marketing front. There’s always some tipping point between not-spending-enough-not-getting-customers to spending-the-right-amount-getting-good-customers. For us, that tipping point was about 5% of revenue.
But your business is your business. And there are no “shoulds”.
Happy small business marketing!
Theron & Katie
At Urban Sherpa Marketing Co. we offer marketing advisory, strategic planning, and services for small businesses and startups, including content marketing. Our goal is to make high-quality marketing possible for every business, no matter the size. Think of us as your outsourced marketing department, strategic marketing advisor, or even your phone-a-friend marketing lifeline. We specialize in building efficient marketing programs to grow your business without blowing the bank.
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