6 Steps To Developing A Small Business Marketing Budget
By: Kris Gerner
In a nutshell, here are the six steps to developing a marketing budget as part of your marketing plan:
- Know Your Sales Funnel.
- Know Your Operational Costs.
- Set Your Marketing Budget Based on Business Goals.
- Position Marketing as an Investment, Not a Cost.
- Consider Your Growth Stage.
- Understand Current and Future Trends.
The business world of today is crowded and competitive. All too often, business owners think they’ve finally found something that will give them an advantage only to learn that someone has already thought of it.
Business owners have been struggling to deal with competitive markets for centuries and the one solution that has always provided results is better marketing. Why? Because it doesn’t matter how good your products and services are or how long you have been in business if no one even knows you exist.
Before you can start marketing your business though, you need a strategy and before you can create a strategy, you need to make a budget. Admittedly, it does seem like a daunting task, but it’s really not. With a few simple steps, you can calculate a budget and get your marketing strategy up and running.
The Importance of a Marketing Budget
Before we go over how to create a marketing budget, let’s talk about why it’s important. The first and most obvious reason you need a marketing budget is that, without one, you run the risk of doing some serious financial damage.
Marketing isn’t something you can just throw money at until you see results. It takes constant and consistent work. Without a budget, you’d have no means of measuring their return on investment, making it impossible to plan for your next marketing campaign. A budget helps you measure, track, report, compare, and tweak your strategy as needed, without wasting time or money.
Why else should you create a marketing budget?
- It forces you to prioritize your efforts and focus only on what works.
- Perhaps more importantly, a strict marketing budget can help reveal what doesn’t work, so you don’t spend money on fruitless efforts.
- It gives you an idea of when you can hire more employees. For example, making more sales and increasing your marketing budget may be a sign you need to hire more staff or salespeople.
- It’s a great motivation tool. There are few things more pleasant than developing a plan and executing it effectively.
- It encourages your team to coordinate and communicate in order to focus on everyone’s common goal: making more sales.
Alright, let’s get started on creating your budget.
Decide Whether You Want a Fixed Budget or Variable Budget
Fixed budgets are good if your company is newer. New companies often don’t have last year’s revenue to base anything off of. You also may not have had a chance to assess your competition’s marketing efforts for comparison purposes. In these cases, it may be best to start with a modest, set amount of money to put toward marketing.
Variable budgets are good if your company is well established. You should have at least one, if not many, year’s worth of data to base your budget analysis on. You should also have a pretty good idea of what kind of marketing your competition is engaging in and how much they spend on it.
If Going with a Fixed Budget, List Your Operational Costs
The first step to figuring out what you can spend on a fixed marketing budget is being aware of how much you’re already spending on other things. This step is fairly simple and only requires you to make a list or spreadsheet of each monthly and/or yearly expense your business has. This should include things like payroll, administrative costs, taxes, utilities, etc.
Once you have your current costs on paper, you’ll start to get an idea of how much wiggle room you have to create a marketing budget with. Generally, two to three percent of what you’re bringing in is a good place to start.
If Going with a Variable Budget, Determine Your Percentage Of Revenue
Generally, businesses use their projected revenue to estimate how much money they’ll spend on marketing. Most small businesses are doing less than $5 million a year in sales and have a net profit margin of 10-12% after expenses. If this sounds like you, the U.S. Small Business Administration recommends spending seven to eight percent of your gross revenue on marketing and advertising.
Now that you’ve determined what type of budget to use, you can take some additional steps to fine tune it and decide how those marketing dollars are best spent.
Identify your growth stage.
If you’re in growth mode, you’re looking to generate revenue fairly quickly. In this instance, your first step should be to invest in a well-designed website. Since that’s going to take a large chunk of your budget, the rest of your money should be spent on relatively cheap but effective marketing tactics that will direct prospective customers to your new site (e.g. Facebook ads, PPC, etc.)
If you’re in maintenance or planning mode, you can afford for your marketing game to be a little slower. You, and your website, are already established, so you can invest more time and money into things like content marketing. Efforts like this take a while to generate results but ultimately enrich your online presence.
Figure out what tools you need.
There are countless tools designed to help companies create things like advertisements, email campaigns, newsletters, social media posts, blogs, etc. Some of these things can be achieved for free or cheap whereas others can get pretty pricey. Unfortunately, if you’re handling your marketing efforts on your own, investing in programs like these is often necessary to save your valuable time.
Pinpoint your target audience.
Your efforts aren’t going to do you any good if the wrong people are seeing them. Target the right audience by determining who likes the type of products or services you provide. Next, figure out where they live, what their gender is, how old they are, what their education level is, what industry they work in, and whether they’re single, married, or have children. After that, you’ll have all the information you need to cater to their tastes.
Don’t forget to base your budget on goals.
If you want your conversion rates to be higher, you need to spend money on a website revamp or redesign. If you want to see more engagement on social media, a healthy part of your marketing budget needs to be spent on social media. You can’t throw money at one marketing platform and expect it to get results across the board. When trying to achieve your goals, remember to divide and conquer.
Decide if you can handle this on your own.
Between all the different ways you can market your business and all the different programs you can use to do so, it can be hard to keep up. Most companies reach a point where they either don’t have the time or don’t have the experience required to continue their marketing efforts. That’s when you need to ask yourself, “Do I need to hire a marketing agency?”
BlueTone Media can take your marketing efforts off your plate so you can focus on more important things. We can help with everything from social media marketing to custom website design and everything in between. Whether you need a lot of help or just a little, we’ve got you covered.
The best part is, when you hand your marketing efforts over to us, you’ll be able to rest easy knowing your business’s reputation is in good hands. We’ll keep you in the loop every step of the way from creation to execution to adjustments. You’ll have our team of marketing specialists, designers, and account managers on your side making sure you get the return on investment you’re looking for.