How to Set a Marketing Budget for Your Business

Having a marketing budget is crucial for every business, big or small. Effective marketing can take a small business to the next level and it can help convert first-time customers into repeat customers. No matter how big or small your business, you should have money set aside to practice marketing. The question is, “how do you set a marketing budget for your business?” Or, “How do you determine what your marketing budget should be?” This blog post will help you decide how to set a budget for your specific business.

Why Set Aside Money For a Marketing Budget?

Many businesses find themselves wondering if they should even have a marketing budget. In fact, 54% of small businesses don’t focus on marketing. However, 72% report they focus on increasing revenue. The truth is, it’s nearly impossible to increase your revenue without some form of marketing. Sure, you can offer a rewards program or have a big sale. But without marketing, no one will know about these efforts. So, it’s crucial you set aside a marketing budget for your business.

Every small business owner wants to increase their revenue. As a small business ourselves, we completely understand. But, if you want to drive sales, you must spend some money on marketing. Without doing so, you will only see a fraction of the revenue you could get. The return on investment for each marketing channel and tactic is different. Some tactics are as high as 800%, and some are around 50%. But, when you are properly using a marketing channel, you can almost always expect to make your money back, as long as you have a good sales process. So, although you may feel uneasy investing your hard-earned money, you will find it’s worth it.

Setting Your Marketing Budget

Now that you know why you should have a marketing budget for your business, it’s time to set a budget that you’re comfortable with but will also get you results. There are a few factors that will lead you to the exact amount of money you should put aside for marketing. You will want to look at the stage and industry that your business is in. Below, we discuss how to set your marketing budget based on those two factors.

What Stage is Your Business in?

If your business is in a growth stage and your goal is to build awareness, then you will want to put a little more into your marketing budget. The United States Small Business Administration (SBA) recommends that growing start-ups should spend three percent to five percent of their gross revenue on marketing. They also recommend that businesses with under five million dollars in gross revenue should spend seven percent to eight percent on their marketing. Some experts even suggest around 10 to 20 percent on marketing.

On the other hand, if you have a well-established business, you do not have to spend quite as much on marketing. The SBA says these businesses only have to spend two percent to three percent of their gross revenue. You are not limited to that small percentage though. As long as you are seeing a return on your marketing investment, feel free to increase your marketing budget if you have the margin to do so.

At the end of the day, you want to spend enough money to see results. You want to make sure you’re getting a return for your investment. If you ever see that your marketing efforts are proving to be unsuccessful, we recommend changing your method or readjusting your budget.

How Much Should You Spend?

In the tables below you’ll find a guide as to how much you should plan to invest in your marketing. But to make sure you understand what you’re seeing, let’s explain the various columns:

• Bracket Range: This is a range of the total gross revenue small businesses make every year in the United States.
• Median Revenue: This is the mid-point within the bracket and is used as the average amount made per year for the purpose of calculating what a marketing budget should be.
• % of Businesses: This shows the percentages of businesses in the United States that make revenues within the associated bracket. For example, 29% of all full time small businesses make less than $25,000 each year. Also, 14% make more than $25,000 to $49,999 per year.
• Annually 7%: This shows the annual budget that should be invested on marketing if someone chooses to put 7% of their gross revenue into marketing, assuming they make the median revenue amount. For example, if someone makes $37,500 gross revenue, which represents 14% of all small businesses, they would invest $2,625 per year on their marketing.
• Monthly 7%: This shows the same type of information as the previously column, but rather than an annual budget, it’s showing a monthly budget.

In the tables below, you’ll be able to see how much to invest, ranging from as low as 7% and as high as 12% of your gross revenue. We also put in a couple extremely high, yet not unheard of, percentages.

Relatively Low Marketing Budget

Many businesses don’t invest any of their revenue into marketing. This isn’t wise, though it is common. If that’s you, then putting seven or eight percent of your gross revenue into your marketing activity may feel like a stretch. But, it’s a good investment into your business. And as time goes by, and you do a good job with marketing, you can expect to see a growth in your sales. This growth should be directly related to the marketing investment you make. But, be sure whoever you use for your marketing does a quality job. And focus on digital marketing, rather than traditional marketing, since the average cost per lead is typically much lower. However, depending on your industry, you may be an exception to this rule.

All revenue related statistics in the tables below come from an article titled How Much Do Small Businesses Really Earn, and was published on Business Know-How in January, 2021.

Business’ Gross Income				Marketing Budget Based on Median & Percentage
Bracket Range		Median Revenue	% of Businesses	Annually 7%	Monthly 7%	Annually 8%	Monthly 8%
$0	$24,999	$12,500	29%	$875	$73	$1,000	$83
$25,000	$49,999	$37,500	14%	$2,625	$219	$3,000	$250
$50,000	$74,999	$62,500	7%	$4,375	$365	$5,000	$417
$75,000	$99,999	$87,500	4%	$6,125	$510	$7,000	$583
$100,000	$149,999	$125,000	14%	$8,750	$729	$10,000	$833
$150,000	$199,999	$175,000	4%	$12,250	$1,021	$14,000	$1,167
$200,000	$499,999	$350,000	14%	$24,500	$2,042	$28,000	$2,333
$500,000	$999,999	$750,000	6%	$52,500	$4,375	$60,000	$5,000
$1,000,000	$5,000,000	$3,000,000	7%	$210,000	$17,500	$240,000	$20,000

Typical Marketing Budget

Most marketing professionals recommend businesses invest 10% of their gross revenue on marketing. This is an excellent place to start with your budget. And you can always adjust the budget later, if needed.

Business’ Gross Income				Marketing Budget Based on Median & Percentage
Bracket Range		Median Revenue	% of Businesses	Annually 9%	Monthly 9%	Annually 10%	Monthly 10%
$0	$24,999	$12,500	29%	$1,125	$94	$1,250	$104
$25,000	$49,999	$37,500	14%	$3,375	$281	$3,750	$312
$50,000	$74,999	$62,500	7%	$5,625	$469	$6,250	$521
$75,000	$99,999	$87,500	4%	$7,875	$656	$8,750	$729
$100,000	$149,999	$125,000	14%	$11,250	$937	$12,500	$1,042
$150,000	$199,999	$175,000	4%	$15,750	$1,312	$17,500	$1,458
$200,000	$499,999	$350,000	14%	$31,500	$2,625	$35,000	$2,917
$500,000	$999,999	$750,000	6%	$67,500	$5,625	$75,000	$6,250
$1,000,000	$5,000,000	$3,000,000	7%	$270,000	$22,500	$300,000	$25,000

Fairly Aggressive Marketing Budget

Most businesses don’t put more than 10% in their marketing, from what we’ve seen. However, if you really want to pull ahead of your competition, and assume they are probably doing something like 10% or less, then doing a little more can help you pull ahead. It’s definitely something worth considering, especially if you’re in a competitive market.

Business’ Gross Income				Marketing Budget Based on Median & Percentage
Bracket Range		Median Revenue	% of Businesses	Annually 11%	Monthly 11%	Annually 12%	Monthly 12%
$0	$24,999	$12,500	29%	$1,375	$115	$1,500	$125
$25,000	$49,999	$37,500	14%	$4,125	$344	$4,500	$375
$50,000	$74,999	$62,500	7%	$6,875	$573	$7,500	$625
$75,000	$99,999	$87,500	4%	$9,625	$802	$10,500	$875
$100,000	$149,999	$125,000	14%	$13,750	$1,146	$15,000	$1,250
$150,000	$199,999	$175,000	4%	$19,250	$1,604	$21,000	$1,750
$200,000	$499,999	$350,000	14%	$38,500	$3,208	$42,000	$3,500
$500,000	$999,999	$750,000	6%	$82,500	$6,875	$90,000	$7,500
$1,000,000	$5,000,000	$3,000,000	7%	$330,000	$27,500	$360,000	$30,000

Extremely Aggressive Marketing Budget

Just for the fun of it, we’ve included options for a 20% and 25% marketing investment, based on gross revenue. While that might sound far fetched, this is actually common for some industries, such as retail stores and highly competitive industries. In fact, that’s roughly the amount we invest in our own marketing. And still, we wish we could do more. There’s just so much that can be done with marketing. It’s important to identify the best marketing channels that make the most sense for you, and for your budget.

Business’ Gross Income				Marketing Budget Based on Median & Percentage
Bracket Range		Median Revenue	% of Businesses	Annually 20%	Monthly 20%	Annually 25%	Monthly 25%
$0	$24,999	$12,500	29%	$2,500	$208	$3,125	$260
$25,000	$49,999	$37,500	14%	$7,500	$625	$9,375	$781
$50,000	$74,999	$62,500	7%	$12,500	$1,042	$15,625	$1,302
$75,000	$99,999	$87,500	4%	$17,500	$1,458	$21,875	$1,823
$100,000	$149,999	$125,000	14%	$25,000	$2,083	$31,250	$2,604
$150,000	$199,999	$175,000	4%	$35,000	$2,917	$43,750	$3,646
$200,000	$499,999	$350,000	14%	$70,000	$5,833	$87,500	$7,292
$500,000	$999,999	$750,000	6%	$150,000	$12,500	$187,500	$15,625
$1,000,000	$5,000,000	$3,000,000	7%	$600,000	$50,000	$750,000	$62,500

 

Are you enjoying this post? If so, be sure to subscribe for occasional email updates from our team!

What Industry is Your Business in?

Different industries will need to put different amounts of money on their marketing budget. For example, car dealerships will likely not have to spend as much on their marketing because they make much more out of each sale. Retail stores, on the other hand, need to spend a large portion of their revenue on marketing to drive their sales. The SBA reports that new retail stores typically spend up to 20% of their gross sales on marketing. When setting your marketing budget, look at the products or services you offer and how much you make on average per sale. Usually, the more you make in sales, the less money you have to spend on marketing.

Where to Spend Your Marketing Budget

Once you have decided on your business’ marketing budget, you need to figure out where to spend the money. There are many different types of marketing, so it can be confusing trying to figure out where you will get the best bang for your buck. We always recommend starting with online marketing.

Online marketing is an umbrella term that refers to anything from SEO, email marketing, to social media marketing. This is a more popular form of marketing than it used to be as we are becoming more technologically advanced each day. The marketing world is starting to turn away from outbound marketing (commonly referred to as Old Age marketing). As a result, you may not want to spend a large percentage of your marketing budget on newspaper advertisements and mailers. Of course, your business could be the exception to this rule.

Inbound (New Age) marketing is seen as the most prevalent type of marketing in today’s world. Most online marketing tactics fall under inbound marketing, which is why it should be practiced. We recommend spending at least half of your marketing budget on online marketing as it is very effective. And we aren’t alone in this recommendation.

SEO

One of the most cost-effective online marketing tactics is SEO. This is the optimization of your website so it ranks higher in search engines. 50% of companies say their most effective marketing tactic is SEM, or search engine marketing. This includes SEO, and also PPC (pay-per-click) search engine marketing. SEO in particular is very inexpensive when compared to other marketing tactics.

Many small businesses opt to optimize their website themselves by reading SEO blogs, such as ours. Truth be told, someone can do most on-site SEO tactics for their website by following a few best practices. This is if they have a consistent blog and several webpages. However, when it comes to off-site SEO, it’s best to rely on a marketing company. Off-site SEO involves building backlinks from high-quality websites and it takes a great deal of time. But, many companies offer these services at all different rates. If you live in a state where services are more expensive, such as California or New York, you can contact a company in a state with lower rates. SEO is something people can do from anywhere, so feel free to look around and get several quotes.

Social Media

Another online marketing tactic you should delegate some budget to is social media marketing. Having a social media account on each platform is completely free. But, it may cost you money if you hire someone to manage your accounts for you. Also, if you hire someone to create content for you, it can cost you some money there. Posting on social media consistently takes a considerable amount of time. So, many business owners choose to hire someone to run their accounts for them. This is where social media can cost money.

If you have a tight marketing budget right now, it doesn’t hurt to start posting now. Although you may not have a great deal of time to spend on social media now, you can post just two times per week. Also, whenever you have downtime, respond to comments and tags as much as possible. When you do feel comfortable delegating more money to your marketing budget, consider hiring experts to manage your social media. Social media has a high ROI and can make your business look far more professional to potential customers.

Pay-Per-Click Advertising

Pay-per-click advertising, commonly known as PPC, is a popular form of paid online marketing. This is where you pay an advertising platform each time one of their users click to visit your website or profile. Many large platforms like Google, Facebook and Instagram offer PPC to their advertisers.

PPC is one of the most expensive online marketing tactics you can use. However, it does have a very high ROI. Because it’s set up for advertisers to pay platforms each time someone visits your website or profile, it is much more likely to generate leads. If you use a great landing page for your PPC campaign, people will be more enticed to work with your business.

Email Marketing

Email marketing is a tried and true marketing tactic. In fact, it’s one of the first effective online marketing tactics, and it’s still one of the most effective today. One of the major benefits of email marketing is that it’s incredibly inexpensive. Most email platforms charge upwards of nine dollars per month, depending on how many contacts you have. So, just about every business should be able to afford it. And, it’s a marketing tactic that people are used to, and some even enjoy. 49% of users report enjoying promotional emails from their favorite companies.

The main concern with email marketing is making sure you have the time for it. It’s best to send emails two to three times per month, depending on your industry. If you are a fashion company specifically, you should be sending at least one email per day. If you don’t have someone on your team who is responsible for all of these emails, it can be difficult to stay consistent. So, outsourcing this marketing tactic is a great solution.

Hiring a Marketing Agency

As mentioned above, practicing marketing takes a considerable amount of time. So, many business owners choose to outsource their marketing to a marketing agency. While this will take up more of your marketing budget, it will lead to a great return on investment. Rather than being uncertain about where you are spending your money, an expert can ensure you get quality leads from your marketing budget.

If you have never practiced marketing and you are unsure about where to start, hiring a marketing agency may be in your best interest. An experienced marketing agency can help you be successful with your marketing strategy. Additionally, they can help with implementation. This will cost more money than if you were to do it yourself, but you are much more likely to see positive and quick results. Marketing agencies also tend to offer more services, like content management and search engine optimization. For these reasons, it can be a great investment to hire an agency.

Other Forms of Marketing

We recommend you browse the rest of our blog, to become more effective as an online marketer. We go more in-depth and cover other forms of marketing you can invest your marketing budget on. If you would like some additional information on marketing channels, please browse the rest of the blog.

We will answer any of the questions you may have about marketing budgets and help you get started on your business’ marketing. You can contact us by filling out the form below.