How Much Should A Small Business Spend On Marketing

man looking at his small business budget
Marketing is an integral part of the business model. It is the reason why many enduring brands are still in the market today.

A marketing budget is essential for a business to attract more customers and succeed. According to the US Small Business Administration, a rule of thumb is to set the marketing budget up to 5% of total revenues. However, there are other factors that you need to consider when making a marketing budget.

If you’re a new company, your marketing plan may define your market position after a few years. Even if you have the best product or service in the world, no one will buy it from you if no one knows about it.

That’s why setting up a marketing plan is a must for businesses of any size. If you can advertise your products or service properly, your company might get more chance on staying in the competition. There is one crucial question for new business owners out there that needs to be addressed: how much marketing budget is enough?

Why Do You Need To Spend Money On Marketing?

The importance of advertising your products are services is undeniable, especially in this digital age. Think of advertisements as an investment to your brand. As more people recognize your brand, the more likely that they will buy what you offer. And this results in to increase in sales and more clients.
A good marketing strategy will also add to your brand’s reputation. Have you ever wonder why newer companies tend to use ridiculous advertisements? Its to bring awareness to their brand. Spending a little bit of your revenue on the marketing budget will cost you faster growth.

And last but not least, another good reason why marketing is critical to the company’s success is differentiation. Why would a consumer buy your product, and not the competitors’? A successful brand differentiation will make your brand stronger. And all of these benefits need marketing to take effect faster.

man thinking about a marketing budget
Average Marketing Percentage Budget For Small Businesses

A report from the US Small Business Administration recommends about 2- 5% of their revenues for the marketing budget. This percentage will universally work with any business, but not the optimal percentage. This is a reasonable rate but will likely not help you make a skyrocketing growth. Each company has a unique position in the market, and therefore, has unique marketing needs.

*If you’re earning $5 million or less in yearly sales, you might want to up your game and allocate 10% to 12% to advertisement.

For example, luxury products and furniture stores would often have a higher percentage in their marketing budget. This is because their products are harder to sell. You should let the world know that you’re selling these products because not all people will need them regularly.

Meanwhile, retailers and food stores will likely allocate a smaller budget for their advertisements. These industries would instead use their funds for better technology and better pay for their staff members. Businesses in these categories don’t need to make too much effort in marketing their products because people will make a purchase regardless.

Take note that your company age will also be of big importance. An established company will need fewer investments because the consumers already know the brand in the market. Meanwhile, a new face in the market will likely spend more in marketing to get their brand name heard.

If You’re A New Company

For newer companies, you should reinvest 12% to 20% of your gross revenue. This rate is adequate to cement your brand identity to the market consumers. Instead of cutting the marketing budget, those in a tough position should cut your costs by optimizing your operation.

If You’re Already Established

One of the perks of being a known brand is that you can allot less money on your marketing needs. This is because your brand-building years are already over, and your brand is already known. The US Small Business Administration recommends the allotment of at least 6% to 12% of your gross revenue for marketing. 

5 Things To Consider When Making A Marketing Budget

Before deciding on your overall market budget, here are six important factors that you have to consider.

1. Your Annual Growth

Your initial annual growth is an indicator of how successful your marketing campaign is. Before funding the existing model, look at your sales numbers and decide whether the campaign is worth keeping.

2. Know Your Customers

If your target market covers a whole city, there is no point in making a marketing budget covering the entire country. Make sure that your marketing plan matches your customer demographics too. Once you know your customers, you can create a good plan and decide on your marketing budget.

3. Spring Cleaning Time

Does your brand need a revamp? Is it the time of the year where you need a bit of gimmick to raise your sales. In that case, you might have to allot more funds into advertising.

4. Available Marketing Options

There are numerous marketing options available right now due to the internet and social media boom. You might want to check these new marketing options and decide whether the additional cost would be worth it. Take note: not all products will benefit from online marketing, so consider this first.

5. Follow And Track Your Marketing Plan

And finally, use your last year’s data and track your advertising expenses. Is doing what you did last year worth it? Can your plan keep up with your company goals? If not, you might have to do a little bit of tweaking or create a new marketing plan altogether.

The Unavoidable Change

A marketing plan is something that changes based on your brand performance and market position. Hence, no marketing budget percentage is set to stone. In most cases, you will have to adapt to market trends and adjust your plan, and that’s a part of a successful business model.
If you’re not perceptive about the market changes, you might end up wasting advertising money on a campaign that doesn’t work anymore.


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