Marketing

How to Set a Marketing Budget for a Small Business: 20 Tips

Nearly 85 founders and marketers share 20 actionable tips for setting and evaluating marketing budgets for small businesses.

Jessica Malnik Jessica Malnik on January 4, 2022 (last modified on December 22, 2021) • 27 minute read

Whether you are a brand new business or you’ve been around for two decades, the general process for setting a marketing budget looks similar. 

This process includes:

  • Identifying your marketing goals
  • Developing your marketing strategy
  • Allocating budget to each campaign and/or channel.  

While the process is straightforward, figuring out what to prioritize and how much budget to allocate is anything but simple. 

So, we reached out to nearly 85 small business owners and marketers to find out how they go about setting their marketing budgets. 

For added context, of the people we reached out to, 52% of them are spending between $5-$15k per month on marketing. 

what is the size of your small business monthly marketing budget?

And, 59.% of them are small business owners. 

what is your relationship with small businesses

In this post, we’re sharing their tips for setting marketing budgets segmented by monthly marketing budget amounts: 

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Advice from Businesses with Less than $5k Monthly Marketing Budgets

When you are just starting out or have a limited marketing budget, you need to be more intentional with where you allocate each dollar. Some of the things you should keep in mind when developing a marketing budget are:

Start with your marketing goals 

Before you create any marketing budgets, it is important to get clear on your goals. Your goals should inform your budget, not the other way around. 

“Most small businesses don’t have any idea how much marketing budget they should spend to get started,” says Benjamin Poirrier of Prodima Vietnam. “Based on our experience, we advise them to go for this option: clarify what is their desired goal.

  • How many leads per month do they need to get to be profitable?
  • How many online sales (x the average basket) would be considered a good target?
  • How many phone calls do you want to receive?
  • How many website visitors would satisfy your boss?

In short: no budget? No problem! With marketing, we should go the other way around anyway. There are many tools available out there. They help marketers estimate their KPIs based on a budget. If you know what you need to achieve, you can calculate how much investment you need.”

Develop a holistic marketing strategy first 

Once you are clear on your goals, you can create your marketing strategy by reverse engineering your goals. 

“The best way for a small business to set its marketing budget is to research and develop its Integrated Marketing Strategy first,” says Lisa Cutter of Amp Up My Biz. “The budget then becomes one piece of the overall strategy, and you’ll find that it’s much easier to see where marketing expenditures could take place versus where they should be spent. It’s also much easier to plan when each part of the budget will be spent, even if it’s over the course of one year, two, or more.

Most small business owners may not have the know-how to develop their Integrated Marketing Strategy, but that’s no reason to skip this step. Without having one in place, many entrepreneurs overspend or underspend, but without a doubt, they spend their precious marketing budget in the wrong places. When this happens, they get little to no ROI. As a result, many don’t make it and close up shop.

With an Integrated Marketing Strategy, the projected ROI is not only made clear but is also achievable as long as the strategy is executed. Small businesses can get this crucial piece of their business plan from an expert online marketing agency. It’s well worth the investment and in our experience, proves fruitful for years to come.”

Review your current sales cycle 

If you have been in business for a year or more, then you already have some historical sales data. This is information you can absolutely use to make better budgetary decisions.

“Be intentional with your marketing budget,” says Michael Eckstein of Eckstein Advisory.  “Marketing isn’t a budget dumping ground for your remaining funds after you’ve allocated for the rest of your operating expenses. It drives the business engine. Take a look at last year’s marketing budget, how many leads were generated through marketing efforts, and mathematically work out how much additional marketing budget you’ll need to hit next year’s lead and revenue goals. You can even take it a step further and break your marketing budget up into sub-categories as ad spend, marketing salaries, and outsourced agency spend.”

Michael Jeffcoat of The Jeffcoat Firm adds, “Setting random marketing budget plans does more harm than good. Limiting your ad spend to an amount that you feel “comfortable” spending puts you at risk of underfunding and overfunding. 

Never trust your gut feeling. Use your sales cycle as a basis when mapping out your marketing budget. Determine the funds needed to collect leads, reach out to them, identify qualified prospects, pitch to them, address their concerns, and convert them into customers.

Note, however, the sales cycle isn’t a straight path. Keep in mind that some cases might require you to jump back one stage—especially with high-ticket sales. As such, I suggest setting a leeway. Fast-moving consumer goods have a swift sales cycle, but high-involvement purchases like learning programs, electronic devices, or real estate properties need a much larger ad spend because of their lengthy buying-selling process.”

Consider your operational constraints  

One of the risks of optimizing too much for leads or deal flow is that you can end up inundating your sales and/or customer success teams. You wind up not being able to service new leads and customers properly, resulting in lower conversion rates and/or higher churn. 

“The most important aspect is understanding your operating capacity and sales funnel,” says Shawn Plummer of The Annuity Expert. “Even if you generate lots of sales and leads with a big marketing budget, if you can’t fulfill the sales, you end up losing the revenue. Set a budget that is within your operating capacity and consider the cost per sale for yourself.”  

Related reading: Improve Marketing Agency Operational Efficiency with These 17 Tips & Software

Prioritize budget according to perceived ROI 

Another way of setting your budget is to allocate fixed amounts based on perceived ROI from each channel or campaign. 

“For us, the most important aspect in our marketing budget is ROI,” says Charles Leduc of Mold Busters. “Every marketing budget decision is based around the returns we get. When we are exploring a new channel, we do small test runs first to get a better idea of what the ROI will be before diving all the way in. However, it is important to understand that some channels, such as inbound marketing, have a long turnaround time and keep that in mind when looking at ROI and setting the budget.”

One way for established businesses to look at ROI is by evaluating customer lifetime value segmented by each marketing channel.      

“The best way for a small business to set a marketing budget is by looking at lifetime customer value,” says Chris Bilko of Toffee Copy. “That’s the total amount you can spend on acquiring a new customer. Multiply that by the number of new customers you’re looking to acquire in a given period and, bam, you have your marketing budget. It’s surprising how often this is overlooked!”

Leverage organic channels 

When you are spending less than $5,000 each month, it usually makes sense to prioritize organic or less costly channels. 

“SMBs have to be scrappy, resourceful, and creative,” says Paige Arnof-Fenn of Mavens & Moguls. “Never let a small budget or lack of budget get in the way. Use organic SEO, online, and guerrilla marketing until you can afford to invest more. You can always do something.”

Balance short-term vs. long-term strategies 

However, prioritizing less-costly channels shouldn’t come at the expense of either your short-term or long-term strategies

“Marketing is an investment, and the best way for small businesses to grow sustainably is to invest that budget into channels which provide long-term returns with low CAC such as SEO and email marketing,” says Dan Rawley of Honeycomb Search. “It’s really important to make sure your budget reflects your long-term strategy: for example, if you’re investing in SEO, you need to allocate budget to it over the course of six months or a year as the results are unlikely to be instant; you won’t get results by only allocating enough budget to do one month of SEO then hopping between other channels without dedicating enough resource to any of them to succeed.” 

Don’t invest in outside marketing help too early  

Another tip that applies primarily to early-stage companies is making sure you have a coherent strategy and plan in place before you bring in third-party contractors and agencies. This can save you a ton of time and money in the long run. 

“While you might think that the more you spend, the better your results will be, there is often no linear relationship between investment in small business marketing and results in terms of new business and leads,” says Heather Baker of Definition Agency. “Too many SME owners fall into the trap of paying someone else to take this critical task off their hands without really considering whether that someone else can deliver real value for their budget. Your time is valuable, but attracting customers is everything and at the small end of the SME stage, the best person to market your business is you.

While every business is different, it could be worth outsourcing other business operations and educating yourself on how to market your business – if you learn a few tricks of the trade (which will vary enormously depending on your industry, your business, and your goals) and apply them cleverly, you can get excellent results with minimal investment. And most agency people will be very happy to offer free advice over a coffee. Save your money now so that you can invest in agencies and consultants when you start achieving real traction.”

Collect feedback from prospects and customers

Not everything you try will work. Sometimes, it is because your target audience isn’t there. Other times, it is because of your messaging or creative. Keeping that line item on the budget for a marketing activity doesn’t produce results is foolish. Collecting feedback can save you from making this mistake over and over again. 

“Marketing is one of the most important aspects, if not the most important,” says Sam Campbell of reddiquette. “To set a marketing budget for a small business, it would be best to gather feedback from existing and prospective customers about which channels they prefer, how often they want communications from you, what type of promotions or deals you can offer them. 

Businesses have a tendency to overspend on social media, particularly Facebook Ads since its easy-to-use interface takes away some of the intimidation that usually accompanies running a campaign. Remember that your time is also valuable, so if your advertising budget isn’t doing well with potential clients then put more time into those ventures instead of ones that are simply costing money but don’t give any return.” 

Related: 7 Ways to Use Customer Data for More Efficient Marketing

Test and revise your budget often 

Similarly to collecting feedback, you should always be running experiments. 

“Test, Revisit, and Revise: It’s more vital to know whether your expenditure is actually helping you achieve your marketing goals than it is to stick to a strict budget,” says Bradley Bonnen of iFlooded Restoration. “After all, there is no such thing as a marketing budget set in stone. 

A small firm can experiment with new areas and sources, such as social media advertising, and see what works. You can, then, pivot based on the outcomes. Businesses, for example, spent less than 10% of their marketing budgets on social media in 2017, but expect to spend nearly 20% by 2023. 

The goal is to keep track of your marketing efforts at all times. If the platform is generating the ROI you require, you can keep investing the same amount, or even increase it if you have the resources to do so. If the platform isn’t delivering results, you can cut or eliminate the cost and reinvest in the platforms that are. 

Make a strategy for tracking your spending and the impact of different activities on your bottom line. Analyze the effects of different tactics. Was one quarter of the year more profitable than the next? To replicate that influence on your bottom line, you’ll need to understand why.”

Be flexible  

In addition to running experiments and collecting feedback, it is crucial to ask on these insights and pivot when appropriate. 

“When setting a marketing budget, it is very important for small businesses to be flexible,” says Nikita Agarwal of Milestone Localization. “If you’re an online business and you see that a particular marketing channel is giving you profitable conversions, you should put more money into that channel. A lot of businesses have fixed marketing spend and do not increase their budget even when they see good profits.”

Advice from Businesses with $5k – $15k Monthly Marketing Budgets

Many of the same principles apply, like setting goals, creating your strategy first, and reviewing your metrics often. However, as your marketing budget increases, the risks of overspending or prioritizing the wrong things increases too. 

Set your budget based on your company size, the market you are in, and business lifecycle 

This is good advice for any business, and not just those spending between $5k – $15k per month on marketing. 

“The size of your marketing budget should largely depend on the industry you’re in and the level of marketing your competitors offer,” says Minesh Patel of The Patel Firm. “The US Small Business Administration recommends spending under 8% of your total revenue on marketing if your business names under $5 million. That said, you will need to beef up your marketing efforts, and spending, when you’re launching a new product, overhauling your website, and more. Sticking to a smaller 5% budget will help you account for those more expensive years and average your spending out to under 8% over your business’s lifetime.”

For example, Keith Eneix of Taut USA adds, “After years being a small business owner, I realized that I put a lot less stress on myself if I just set a marketing budget based on my revenue. The 7-8% rule which is for businesses who make up to 5 million would be a good parameter to follow but when you’re in the very early stages of business ownership and you’re not nearly close to that budget, even that percentage can be hard to apply. With that said, it’s best to follow a budget that feels comfortable to you in the beginning, and as your business grows and your brand gets more attention, even if so small, then you can start increasing the budget you have for marketing.”

Think of your marketing plan as a map 

As we alluded to earlier in this post, creating a marketing strategy and plan is an essential first place. The plan you lay out can act as your compass. 

“A marketing plan is like a map,” says Natalia Brzezinska of PhotoAiD. “It shows the path and destination of the company and how it will get there. It identifies the company’s different opportunities to penetrate a given market, so it is essential to establish the proper budget. 

It is recommended that for start-up companies to allocate around 12-20% of gross revenues to marketing, while for established companies, this figure would be 6-12%. 

Before defining the different items of your budget, I advise you to take some time to audit your project. On the one hand, focus on your target audience:

  • What is your buyer persona like?
  • Where does it usually consume information?
  • Does this audience recognize your brand?

On the other hand, get to know their purchase funnel. 

That is, understand their buying process and identify which channels or actions you need to activate, maintain or eliminate from your marketing strategy.

Where are you, and what do you want to achieve?

Understanding through which channels you generate new visitors and customers or your acquisition cost, for example, will help you understand how to allocate your budget. And of course, don’t forget to measure the results!”

Monitor your marketing metrics often 

To avoid over or underspending, tracking your marketing metrics on a weekly basis is essential. 

“The most important aspect in developing your marketing budget is not making the mistake of setting it and leaving it,” says Katie Adkisson Byrd of REED Public Relations. “Budgets should always be tied to business goals and measured regularly. Without consistent measurement and evaluation to determine if the tactics you’re spending your marketing dollars on are working, you are sure to miss an opportunity. By continually measuring and adjusting, you can determine what’s really working and increase spend to achieve a better outcome. Conversely, if you realize something isn’t working mid-year, you can cut it out of your budget and redirect the money to a more effective solution.”

For example, Kyle McCorkel of Safe Home Offer says, “As a small business that relies heavily on marketing, I have found that the most effective way to set a marketing budget is to track, track, track: track your spending, track your leads, and track conversions. 

While different methods obviously cost different dollar amounts, they also vary greatly on the number and quality of their leads. Much of setting an initial budget is trial and error, but once numbers start rolling in, it really is just a matter of understanding your metrics and moving forward with goals.

Work backward from each method to figure out how much each lead and each conversion costs. Then figure out how many deals you want to do this month (this year). Many times the cheapest method for obtaining leads is not the most effective method for converting deals. But it really is a numbers game. 

Once data starts rolling in, it is easy to see where leads that result in a deal originated. You will start to see trends, and responding to those trends with the understanding of where you want your business to go will help you set your most effective marketing budget.”

Match your marketing spend to revenue      

The simplest way to tie your marketing budget to your metrics is by your top-line revenue. 

“Match your spending to your revenue,” says Melanie Bedwell of OLIPOP. “For small businesses, you want to allocate 7-8% of your projected or actual gross revenue to your marketing budget. This number will vary depending on your industry, your business capacity, the amount of growth you can handle, and how fast you want to make an impact. In the early years, you may even want to spend up to 20% to establish yourself in the marketplace. Once you have a well-known brand, you can fall back into the average range to keep the momentum going.”

Alex Alexakis of PixelChefs adds, “A marketing budget should be set on the general rule of revenue: if you are making less than 5 million dollars annually, your marketing budget should be around 7-8 percent, with this being based on the margins of 10-12 percent. If you are looking to get your business off the ground, you may want to bump this percentage up to 20 percent, to help you gain those new customers quickly, and build some customer loyalty quickly. You should always make sure to have a marketing plan for everything that you do, and you should revisit these plans every 6 months to a year to make sure that they are still useful for your company. 

Changing your marketing plan too often can lead to there being a disconnect in the content created for the marketing, but not changing the plan enough could lead to out-of-date tasks that are no longer useful to the company.”

If you are looking for a more precise metric, then you can use revenue per customer. 

Brian Nagele of Restaurant Clicks explains, “Start with the revenue per customer metric. If the revenue per customer is less than $100, the marketing budget needs to be low enough to still make a profit. Think low-cost marketing strategies like SEO and sharing on social media. On the other hand, if the revenue per customer is in the thousands, the company can afford to have a higher marketing budget. For our company, we could afford a mid-sized budget which allowed us to run Facebook and PPC ads.”

Focus on 1-2 channels at a time 

As your marketing budget increases, there is a tendency to expand to multiple channels all at once. This makes sense given how many different marketing channels and tactics you can try. 

However, you will often get better results by focusing on only a couple of channels at a time. For most of the marketers we surveyed, the channels that got the most budget were their website, SEO, and content marketing. 

how do you split your small business marketing budget?

For example, “I’ve been a small business owner and founder now for over a decade within a competitive market,” says Alex Cascio of Vibrant Media Productions. “I’ve found that setting aside more money but focusing solely on a couple platforms has proven to be the best way to test and gain market share. We first tried to spread our marketing budget on too many platforms and got back substandard results. 

Now we focus on the platforms that perform the best for our industry (video production) and push our budget towards what works best. Every industry is different, but going with the main marketing platforms such as Google Adwords, Facebook/Instagram ads, and more, will always be a good idea and are markets where you can target your ideal customer.”

Robert Banks of MrStocks adds, “As a small or medium-sized business in this era, you should have a specific allocation for online or digital marketing. At a minimum, it includes your website. Additionally, it may include things like pay-per-click ads on Google AdWords or Facebook, resources to support a Twitter channel or an Instagram channel that you want to use to build a market or create demand for your product.” 

Don’t set a budget at all 

An alternative approach is to not set a budget at all, instead rely entirely on what your data is telling you. 

“The best way to set a marketing budget is not to set one at all.” says Josh Medow of Mercury Business Services. “If given a budget you’ll spend exactly that amount even though it may be too much or too little. A better, more analytical answer is to discover your customer lifetime value (CLV) and spend up to 1/3 of it on customer acquisition.”   

Advice from Businesses with over $15k Monthly Marketing Budgets 

As your marketing spend goes above $15k per month, you’ll likely find that the planning, complexity, and associated risks increase too. 

Do your research     

This is why skimping on research and planning is ill-advised. 

“It’s important to complete your research and focus on how much ROI (Return On Investment) you want/need,” says Dexter Grima of VitaBright. “In my opinion, you should determine your marketing budget after doing an in-depth examination of your business’s objectives and target market(s)

Your marketing and budgeting strategies should be tailored to your company’s specific needs. Also, tracking how much money you spend on marketing is critical. Increasing the level of detail will provide you with additional information on which you may base future spending decisions. 

For example, if your radio advertising has a 200 percent ROI and your Facebook campaign costs more than it earned, you might consider tripling up on radio and maybe dropping Facebook. Obviously, other things like marketing content or conversion funnel might impact outcomes, but stopping this investment would be a valid option.”

Graham Noble of Privalgo agrees, “As a start-up, setting a realistic marketing budget is crucial, but it can be relatively simple. Research is the most important aspect. Before you decide anything, research as much as you can, and then research some more. This includes your target audience, competitors and their output, and average costs and results of different marketing channels. Attempt to ascertain how much of the target market you’ll reach with your budget. Will it capture some of the target market or all of it? Then you’ll need to fathom how much profit your business will make from acquiring one client. 

Let’s say a client equals $5,000. How much are you willing to spend to acquire one client? And how many clients are you targeted to obtain in your first quarter? This can guide you on the size of your budget. You’ll need to understand the timeframe in which you’ll yield results. Will our spend return a reward in a day? A week? A year? 

By and large, your marketing budget should bring results in the short-term (days and weeks), not the long-term. After all, you may not be here six months down the line. Short-term results come from things like paid ads, Google search ads, special offers etc. That said, you should leave some budget aside for longer-term, brand building. This includes building up your social media following, producing blog content for SEO, and refining your message.”

Find the sweet spot between sales and operational costs 

This is particularly important for paid advertising budgets. You want to make sure your spend is less than all of your operational costs. 

“To set a winning marketing budget, you need to find the sweet spot between your operational cost per product or service and your retail price, aka your profits, using a simple math equation,” says James Diel of Textel. “Gather other departmental budgets to find accurate data on how much you’re spending and determine your ideal ROI. If you sell a product that costs you $5 to produce for $50 and want an ROI of at least 70%, you can’t spend more than $10 on your marketing efforts. Once you have that budget ceiling established, you can work to find creative solutions to lower it.”

Revisit your marketing budget often 

It doesn’t matter if you are spending $1k per month or $20k per month, it is critical to revisit your budget on a quarterly basis. 

“When first launching my business, I realized all organizations must have a marketing strategy to attract clients and increase sales,” says Mellanie Ullrich of Lashfridays. “I realized I had to find out how to successfully advertise my products and services to my target market, which involved allocating an efficient marketing budget. 

Knowing where to begin and how much to invest can be difficult. That is why having a budget is crucial. It not only helps you narrow your strategy but also helps you stay on course with your development and expenditure targets. Evaluate. A marketing budget isn’t something you do once and then forget about. My marketing strategy would evolve as I learned more about my clients and I would try out new marketing tactics, which meant my budget would shift as well. 

Related: Quarterly Business Review: How to Write One and How to Present It Successfully

I recommend you keep track of and analyze your marketing activities to make sure you’re engaging with as many clients as you can while staying within your budget. Make time to evaluate what performs, what doesn’t, and why. Do this at least once per quarter. 

I found constant evaluation helped me maintain my budget while still acquiring the outcome and goals I had. Some people are put off by the prospect of large marketing costs. However, there are always low-cost alternatives that may assist you in inexpensively achieving your objectives. 

One of the primary areas that marketing strategy often overlooks is having a well-designed, powerfully branded website. A website is where the bulk of your marketing efforts will be directed. For businesses trying to sell their products, social media networks are a wonderful place to start.

Another excellent strategy is hearsay, which is usually absolutely free. Request that your clients write reviews for you. Your clients will be able to submit ratings on Google along with their experience with your brand. This is slowly but steadily becoming the primary platform for determining a brand’s reputation. You can now look up various people’s reviews and then decide whether or not you want to purchase a brand.”

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Setting a marketing budget starts with getting clear on your goals and building out your marketing strategy.

Once you have a strategy in place, you can allocate your budget for each channel and tactic accordingly.

Then, most importantly, get in the habit of measuring your marketing efforts on a weekly or monthly basis, so you see what’s working best and adjust your plan and marketing budget accordingly. Monitoring your monthly costs and optimizing your marketing budget regularly is easier with Databox. Create your free account today.  

About the author
Jessica Malnik
Jessica Malnik Jessica Malnik is a content strategist and copywriter for SaaS and productized service businesses. Her writing has appeared on The Next Web, Social Media Examiner, SEMRush, CMX, Help Scout, Convince & Convert, and many other sites.
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