How to Set a Marketing Budget for a Small Business?
Marketing is key for any business that wants to attract a new audience or build a deeper relationship with the one they already have. However, it can get expensive — and knowing how much to spend, or what to spend it on, is a challenge that even big companies can struggle with.
This is especially true during the pandemic. Right now, funds are tight and demand is low for most businesses — but cutting the marketing budget may also be a bad idea.
With the right strategy, any company can build a marketing budget that works for them.
1. Know Your Sales Funnel
The most important step in building a marketing budget is knowing how you need to market. To do this, you must understand how your customers find your brand and what you already do to move them toward a sale.
Your sales funnel is a representation of the steps a customer takes to go from total unawareness of your brand to a sale. They’ll typically be drawn in by an advertisement, learn more about your company through your web presence and eventually go on to purchase one of your products.
On the way, they might ask questions, drift away or need follow-up communication before ultimately committing to a sale.
You need to know what keeps them in the funnel — and what marketing techniques are most useful in getting them to buy.
You’ll also want to know which channels they’re engaging with when they consider a purchase. For example, some customers mostly use the internet to research and shop. Others may prefer physical communication or to visit a store in-person.
Good info on how your customers engage with your brand and commit to a sale will help you invest in the right channels later on.
2. Take Stock of Current Spending
Once you have an idea of where you need to invest, it’s a good idea to see where you’re already spending on marketing efforts. This will also give you the best possible picture of how you’re already reaching out to customers.
With this info, you can build on your current marketing efforts and see where you have room to expand your advertising strategy.
When you review your current marketing budget, you may also notice spending that’s not useful anymore. For example, you may be doubling up on marketing tools or investing in channels your customers don’t seem to engage with much. Keeping track of this inefficient spending can help you optimize your new budget later on.
3. Set a Spending Goal
The amount you should spend depends on your needs, current growth and industry. Some recommend the 5% rule — put 5% of your sales revenue toward marketing.
Other spending recommendations vary — some go as low as 2%, and others as high as 15 or more. In the consumer packaged goods industry, some businesses spend more than 20% of their revenue on marketing.
Industry research may help you find out how much to spend.
Slimming down your budget may be a good idea, but most experts recommend that you avoid seriously cutting back your budget. Unless you’re spending a lot of cash on current marketing efforts, or if your spend is truly unsustainable, it’s better to optimize your funds rather than reduce your budget.
4. Allocate Your Funds
You may also want to spend on upgrades. For example, if you have a physical storefront with static, print signage, you could invest in something flashier and digital. This is typically easier to update and can help you advertise your latest offerings without needing to print new signs.
You may also expand existing ad campaigns or invest in a better version of your current CRM license or marketing email solution.
For each bit of spending, it’s a good idea to have a clear idea of what kind of return on investment you’re expecting. This will help you keep track of your campaigns and ensure you’re really getting your money’s worth out of your marketing spend.
If you find that your draft marketing budget is above or below your target spending goal, you can give yourself a little bit of leeway. Just be careful not to push things too far.
5. Track Your ROI
You’ll need to follow up on your marketing budget. Over the next few weeks and months, you can track your marketing budget’s ROI and get a sense of what is improving your marketing — and what may not be worth it.
Hard numbers will help here. There are a few good marketing ROI metrics that can help give you a very realistic idea of what is working. Some of the most popular digital metrics are cost per lead, cost per acquisition, customer lifetime value (CLV) to acquisition cost ratio and conversion rate. These metrics can be broken down by channel or customer segment depending on what data you have. They provide a very good sense of which marketing efforts are working and which ones aren’t.
Once you’ve gathered data and found useful insights, you can return to your marketing budget. Continuing to tweak, adjust, and remove or add line items as necessary will help ensure your marketing budget is as cost-effective as possible.
Building a Successful Marketing Budget for Any Business
Any business can build a marketing budget that works for them. However, you’ll need to know how your customers learn about your brand and interact with your business before they make a sale.
Investing in the right channels and marketing tools will help ensure you reach the people who are most likely to buy your products.