This is an interesting water cooler topic that we invite your discussion on. We have talked to many small and medium businesses (SMBs) and interestingly learned that many of them had a blank stare when asked “What is your annual marketing budget?”. This is one of the most important decisions businesses need to make (you caught us, we’re a little biased at Strawberry Jam Marketing). Marketing efforts help drive revenue and support sales, so it bears repeating that you need to spend money to make money. Larger companies typically know what their marketing budgets are before or at the start of each fiscal year due to internal processes that facilitate (er.. force) budgeting.
So how you do figure out your marketing budget? Let’s take a look at some general stats. The U.S. Small Business Administration (SBA) suggests between 2% – 10% of sales, while other figures suggest between 1% – 30%. Startups may spend up to 50% the first year. Take these figures for what they are because the right marketing budget will be specific to your business, size, industry, how fast you want to grow and other factors.
Often, small businesses estimate their sales revenue, cost-of-goods, overhead and salaries, and then gross profit. Anything left is considered available funds for marketing support. That’s not such a good idea. … If you are the new competitor in the marketplace, you will have to spend more aggressively to establish your market share objective.”
Once you have a marketing plan in place, an important next step is to define your marketing budget. While a marketing plan will give your business marketing goals – essentially this is your blueprint – a marketing budget will help you figure out how you are going to achieve your goals by attaching a realistic spend. Don’t worry, you can tweak this throughout the year as needs adjust. For example, you may decide to reallocate more funds towards mobile advertising because it is generating better ROI than email marketing. Good marketing involves continuous optimization.
Companies go about determining their annual marketing spend in several ways:
1. Percent of Revenue.
2. Percent of Net Sales.
3. Flat Budget.
Budgets typically cover marketing staffing, advertising, PR, website development/optimization, print and events. Over the last several years, businesses have been shifting more dollars away from traditional marketing (e.g. TV, print, radio) towards digital marketing (e.g. SEO, social media, paid search, mobile advertising, videos). How you divvy up your budget depends on your objectives and the tactics that support it. This graph illustrates the shift in spend.