How Much Money Should a Small Business Budget for Marketing?

You’ve heard the common phrases, “It takes money to make money,” or similarly, “You have to spend money to make money.” Well, that’s just fine as a catch phrase, but how much money are we really talking about?

Taking money out of your profits to spend on marketing can sometimes feel very painful, and it’s hard to know when to do it and where to spend it so that it is most effective.

The Small Business Administration (SBA) recommends that small businesses should allocate 7-8 percent of its budget to marketing. So, by this calculation the annual marketing budget for a $1 million business would be $70,000 to $80,000. That equates to an average of $6,250 per month.

In fact, the SBA further recommends that some industries, especially consumer-focused industries should plan as high as 20 percent for their marketing budgets.

Closely in line with this, the CMO Council, a peer network for Chief Marketing Officers reported that consumer-focused companies (B2C) averaged around 17 percent while business-focused companies (B2B) spent roughly 11 percent on marketing.

When you look at it as a percentage, it is an easier pill to swallow. When you think to yourself, “Yeah, 10 percent sounds like a decent amount to spend on my marketing… I mean, I need to grow somehow.” But then when you have a very small $120,000 business and you’re asking yourself to shell out $1,000 a month to promote your business – it becomes MUCH more difficult to do.

I owned a business called Local Search Services where we offered small businesses the ability to have their business listed on the Google Local, Bing Local, Yahoo Local and other local and regional search engine directories.

The service was one that absolutely everyone needed and still needs. We only offered the service to small businesses that we knew beforehand were not showing up in those directories at all. It would only take us about 45 minutes to complete, we did the service on site, and it would only cost $125.

In the vast majority of small businesses we entered; from day spas to hamburger joints to law firms and dance studios – you would have thought we were asking them to purchase a SuperBowl Commercial. The business failed because we couldn’t get small business owners to see the value of having something that was so necessary get completed for so cheap.

So where am I going with all of this? What’s my final advice? One word: plan. Plan to spend money on your business to help it grow. Plan to put money into marketing and advertising on a monthly basis and choose the best places to spend that money.

It’s much easier to spend money on marketing when you have already allocated that money towards that use.

Think about this, if you went into a bank or a venture capitalist asking for money to fund your small business, and you presented them with a financial budget that showed that you were going to spend little to no money on a marketing budget – you would be denied every single time!

So why, in reality, do we try to do that? If we know that marketing is a vital part of the survival and growth of our business, why do we have such a hard time opening the checkbook and spending money on marketing?

I know the answer to that question, and that is because we are unsure. We don’t like spending money on things that we simply do not know if we will get a return on our investment.

What usually happens with a majority of small businesses that I see is that they spend as absolutely little as possible on their initial marketing. They get the cheapest website they can find. They spend no money on branding and have their 17-year old nephew create their logo since he’s taking a class in high school. They run a coupon in some mailer and have the mailing company artist design it for free and they are told they will reach 100,000 people in their inexpensive mailing and that’s why it appeals to them. And then none of those things work.

So the erroneous assumption then becomes, “see, marketing doesn’t work… it’s just a big waste of money, so I’m going to spend as little as I can on any future marketing”. Unfortunately, they did not allocate the right amount of their budget in the beginning, when it was crucial to their success.

It may seem self-serving for a marketing professional to recommend this, but I would suggest that a small business owner spend at least 30% of startup capital on marketing within the first 6 months. Doing so can build a strong foundation of branding and marketing that will carry your business forward.

When you plan to spend money on marketing your business, you can spend that money much more wisely, and get greater results because of it; and that’s all you really want out of your marketing, no matter what your budget is.

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