What Should My Small Business Marketing Budget Be?

Finding the ideal marketing budget is one of the biggest difficulties for many companies, and as a result it often gets overlooked. While the company is increasing the sales team and growing in other areas, the marketing budget is often forgotten and what money is allocated isn’t used in the best way. In order to reach your company goals, a marketing budget needs to be carefully crafted to account for all internal and external needs.

Before we review the recommended budget, though, it’s important to establish what contributes to a company’s marketing budget.

The Essentials for Establishing a Marketing Budget

This seems like a blanket answer, right? You establish a marketing budget so you know how much you can spend. It’s more complicated than that, though. Determining the amount of money you can direct towards marketing your business will determine the type of content you produce, how much you can direct towards paid ads, and if you should put more money towards video production or stick to blogging and email marketing.

In an ideal world, you could have every piece of marketing collateral possible. So how do you get as close to your ideal world if you’re in a less than ideal situation? Set priorities and stick to them.

Consider your current marketing and your business goals, then rank the following:

  • Social media
  • Paid advertising (Social and Pay-per-Click)
  • Video production
  • Email marketing
  • Blogging
  • Photography (if selling a product)

Social media is important because that’s where many companies’ target audience spends their time. Paid advertising on social has grown significantly since Facebook has decreased organic reach for business pages and pay-per-click will help you appear in the right searches on Google, Bing, and more.

Video production has many different levels to it. From weekly iPhone vlogs about product updates to full-scale productions for new releases, there are many different ways to create video content. We recommend every company use video on Instagram Stories (and now IGTV), even if they can’t afford to bring in a team for a full production.

Email marketing is one of our go-to’s with all our clients, because it’s a direct line to customer (and prospective customer) inboxes. Instead of wondering if they saw your Facebook post or tweet, reach them directly. An email list is one of the best resources for a small business, and we suggest utilizing it as much as possible.

Sending emails once to twice a month is an ideal way to stay top of mind, though some companies have also found great results sending weekly updates. The more emails, though, the higher the budget.

Blogging is a great way to share your company’s vision and insights into your industry, even if you’re in a “boring” niche. Blogging even twice a month on industry relevant topics will help elevate your brand and share how you view your niche.

If you’re selling a product, regular product photography keeps your Instagram feed fresh and builds your content library. Including a line in your budget for monthly lifestyle and product photography ensures you’re always publishing new content. This is possible for services, too, but critical for products. People want to see your product in action, not just on a white background on your sales page.

The 3 Keys: Tools, People, and Training

A marketing budget is more than the content you’re producing. You’ll also need to budget for tools like automation, an email service provider, social listening, data storage, and website hosting. Then you’ll need to account for the labor needed to use these tools and create the product themselves. Then you’ll want to include the amount of training time needed to use these tools to the fullest extent.

This could be additional labor costs, or it could be enrolling them in courses or sending them to conferences. Whatever it is your team needs to fully utilize your tools, make sure it’s included. After all, you don’t want to invest in these tools if they aren’t being used effectively. Without the knowledge to fully utilize them, you’ll be spending money you don’t need to be spending.

You will also want to consider tools that can help your team better utilize their time, so they can focus on innovating, not making sure a post goes out on time. This could mean onboarding a new scheduling tool or hiring a part-time employee or contractor for community management. When you take each of these parts into consideration, you’ll be able to more effectively create your marketing budget.

An important caveat to determining your labor costs within your marketing budget is determining whether employees are truly full-time in marketing. It could be a mix of marketing and customer service, or marketing and sales. You don’t want to allocate their full labor hours from the wrong budget, so take stock of how they’re spending their time.

If you use a time tracking tool, that’s a great place to start. If you don’t, have your team track their time for a week to get a better grasp of how they split their workday up.

Agencies and Marketing Budgets

Working with agencies can decrease your overhead in the marketing department. Outsourcing content production reduces your labor costs, but you will still need someone to facilitate their work.

If you would like to start working with an agency instead of expanding your internal department, base your content development budget on the expense of hiring new employees. You won’t need to pay for insurance, desk space, and other employee-related costs, so you can either pay less or get more content every month.

This is often an ideal choice for both small businesses and startups. You need to focus on your company’s growth with limited funds, and don’t want to manage the project yourselves. In these cases, an agency can act as your entire marketing department, instead of a supplemental arm.

Marketing vs. Sales

Many companies consider their marketing budgets large, until they realize this is mostly spent on sales instead of marketing. If your marketing budget is 10% but it includes sales, it means your marketing budget is really closer to 3%. It’s easy to see how sales contribute to a company’s growth, but many companies have a difficult time proving ROI on marketing efforts.

We can’t move forward without addressing measuring ROI, even though this could be another guide entirely. With today’s tracking options, from Facebook Pixel or SDK to Google Analytics to coupon codes, it’s possible to track where traffic is coming from and how to adjust your marketing efforts accordingly.

When you track ROI, you see that, even with small marketing budgets or lackluster execution, marketing does help your bottom line. In fact, for every dollar spent on marketing, there’s a $10 return on revenue. It’s important to note, though, that increasing your budget doesn’t necessarily mean more revenue. Focus on the areas you prioritized and use the increased budget in a smart way to experience the results you’re looking for.

Determining a Marketing Budget within an Overall Operating Budget

Now it’s time to actually determine how much of your overall budget should be given to the marketing team. In short, we typically recommend allotting 10 to 20% of your net annual revenue. Before coming up with the final number, it’s time to track how much money you’re currently spending and if it’s too little, just enough, or too much.

Here’s what needs to be considered:

  • Company goals
  • Internal investments
  • External investments
  • Current performance

Company Goals for the Next Year

Your marketing campaigns are significantly shaped by your company goals, so it’s important to be aligned. Include product releases, new services, expansion goals, and anything else your company hopes to accomplish in the next year. This includes larger investments like a new website or adding functionality to your current website to support other growth-related goals.

When you align your marketing budget with growth goals, you’re able to better determine an accurate budget instead of cutting corners or overspending throughout the year. Whatever you decide, run every single change through the lens of the company goals. When you do this, your focus will remain on the right areas.

Internal Marketing Investments

Internal investments cover all labor costs as described above. This is more than current spending, though. It includes possible expansion, or even shrinking the department. Is your team ready to meet the challenges of the company goals you’ve established?

If you are going to hire, weigh your options carefully. Bringing on an entirely new role can greatly expand your content creation capacity, but it could also take attention away from roles that need to be solidified. Social media management isn’t an easy job, especially for companies with active online presences. This may be the time to instead invest into another social media manager to more effectively carry out your strategy.

External Marketing Investments

Choosing the right external marketing tools and resources to invest in can certainly become overwhelming. From automation to trainings, there are a bevy of options to choose from. Consult with your team to determine which tools provide the most value, and if there are better options that could help balance the budget more effectively.

These external investments vary widely and allotting enough funds to them provides the leeway you need in the next year to make the goal-focused decisions you need to make.

Current Performance of Marketing Investments

Without analyzing how your current marketing investments are performing, you won’t be able to fully craft the next year’s budget. This works best when you have two years of data to review, but even one year is enough. Compare the beginning of the term’s marketing spend with your current spend, and how performance compares.

Review the tools you’re using, time spent, and overall marketing performance. Here are some questions to ask yourself and your team as you analyze the current investment:

  • Did we spend effectively in each category?
  • Which categories have budget leftover?
  • Are there categories where we can improve if we had a larger budget? (Namely, content-related.)
  • How has each team member’s performance affected the overall ROI?
  • Is your team stretched thin? How could adding a new employee positively and negatively affect your desired results?

Once you review your current performance, you’ll have a better idea of what you need to do and how you need to do it.

Determining your company’s marketing budget requires more than copying last year’s or adding a guess to the spreadsheet. In order to better determine the right marketing budget, consider the content you need to develop, the tools and people needed to make it happen, and the goals you want to reach with these assets. By considering every avenue and what your company needs, you can craft a marketing budget that will keep you growing and thriving.

Marc Apple

Marc Apple

Digital Strategist

I like inbound marketing strategy, creative design, website development, analytics, and organic and paid search. That's what I write about.