Building a Small Business Marketing Budget – Part 2 of 5
Today we’ll be discussing what percent of sales you should spend on marketing. This topic is the second installment in our five week series centered around marketing budgets. If you haven’t read last week’s post yet, you can find the link below.
Week 1: How do I start building a marketing budget?
On to today’s post…
Determining What Percent of Sales You Should Spend on Marketing
Many sources on the internet will suggest anywhere from 5-10% of your revenue should be spent on marketing and advertising.
If that has you gasping for air, don’t worry. We believe a small business can accomplish great things with 2-15%. It all comes down to prioritization, hard work and how aggressive your marketplace is.
Keep in mind that four things drive up the cost quickly: Advertising, special projects, growth, and your marketplace. Let’s take a look at each of these in more detail.
Advertising – B2B vs. B2C Expenditures
The rule of thumb: B2B leverages sales to generate leads, B2C leverages advertising to generate leads.
Advertising creates brand awareness and generates leads, but it’s also expensive. B2B organizations can often maximize smaller advertising budgets because they rely on their sales force to generate leads, so their overall spend may be closer to the 2% mark. Consumer marketing typically always relies heavily on advertising to generate leads, increasing the marketing budget up to or sometimes surpassing 15%.
Special Projects – Building vs. Maintaining
The rule of thumb: Building a brand is more expensive than maintaining it.
If you have a great brand, a website, collateral, and other tools in place, you won’t need to dedicate as much of your budget to getting those special projects off the ground. A “maintenance” budget is much less expensive. If you do need to build (or rebuild) any of these basics, you will likely be closer to 15% of revenue.
Growth – Moderate vs. Aggressive
The rule of thumb: The more growth you desire, the more you need to invest.
Maintaining your companies revenue or projecting moderate growth for the year can often be accomplished at the 2% mark. However, if you are forecasting a record year, you will likely need to invest cash to make that happen. Many small businesses struggle with this factor as they grow, so if your marketing budget seems too expensive, look back at your sales and growth forecasts to determine if it aligns with your overall goals.
Marketplace – Low vs. High Competition
The rule of thumb: The more competition, the more advertising spend.
If you have chosen the fun uphill battle of building a brand in an aggressive, consumer goods segment… that’s the hardest equation of all. The more competitive your market, the more advertising dollars you typically need to spend. Automotive, home repairs, hospitality, healthcare, home goods and more, these firms can expect to spend more on advertising than their counterparts – 10, 15, or 20% at times. In addition, keeping campaigns fresh adds more cost to the equation.
Hopefully the above information will help you set spend expectations as you develop your marketing budget. These “Rules of Thumb” serve as basic guidelines for you to consider and adjust as needed for your business segment and market. We’ll continue this discussion and consider “What should I include in my marketing budget?” in next week’s post!
