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Small Business Marketing Budget

by Amanda Krueger

Every small business needs to invest in marketing to grow. As a small business owner or manager, it can be very difficult to determine how much of your budget should be allocated to marketing, and what opportunities really move the needle. Where do you start?

Start with a marketing plan. You don’t have to write a book, just outline your overall strategy and tactics to reach your goals. Some of the most important parts of a marketing plan are to identify your target market, positioning statement, value, goals, tactics, metrics and budget.

Developing a marketing budget is a critical step in any marketing plan. Without one, you’ll risk over- or under-spending on marketing, which of course, has an impact on your bottom line. Allocating a percentage of sales revenue is a popular method for developing a marketing budget.

The U.S. Small Business Administration recommends startups and small business plan to spend about 7% to 8% of their gross revenue on marketing and advertising. If profit is falling below $5 million annually, bump your marketing spend up to 10% to 12% of gross revenue. Consider aiming for a middle number, and adjust with sales and growth. Although most companies want to consider their annual goals, their size, geographic location and other factors, it often comes down to estimating a budget based on annual revenue.

There really is no general budget recommendation that works for all companies, as they are inconsistent with what they include in their marketing budget. And the honest truth is whether your budget is $1,000, $10,000 or $1 million dollars, you have to go through the same thought process for determining how to spend your dollars. While some companies include any and all marketing and sales related expenses, others would categorize some of those expenses separately as part of their total budget. Typically your budget figures should not include salaries for marketing and support positions.

Reports from Forrester Research and eMarketer show the estimated allocation of marketing funds offline vs. online and across the digital channels:

  • In 2018, the average firm was expected to allocate 42% of their marketing budget to online, and this rate is expected to grow to 45% by 2020
  • Search engine marketing will capture the largest share of online spend with online display (banner ads, online video, etc.) taking the second largest share
  • Online video will represent the highest growth category, with the anticipated investment more than doubling 2016 numbers by 2021
  • Social media advertising investments will continue to grow, with a 17% compound annual growth rate from 2016 to 2021, and is expected to represent 25% of total online spending in 2019.
  • Mobile marketing has grown to a point that it’s no longer tracked in the forecast and it’s presumed to be considered across all channels
  • Digital marketing is pacing at an 11% compound annual growth rate between 2016 and 2021 with the biggest growth occurring in online video.
  • Investment in paid search, display advertising, social media advertising, online video advertising and email marketing is predicted to account for 46% of all advertising by 2021.

Your marketing budget plays a large role in how you will execute your marketing plan. The good news–you can create an effective marketing campaign, even with a small marketing budget. It all starts with the plan, add some creativity, and you’ll come up with effective ways to put your marketing plan into action.

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