Marketing costs can consume a large part of your small business budget. Recent research shows that small businesses spend an average of $10,000 to $12,000 annually on marketing. Depending on your size and industry, this could be anywhere from 5% to 20% of your annual revenue. So, what does this include? How much should I spend? Can I cut costs? To lower your marketing costs while maintaining quality, consider to hire offshore staff. This article will offer valuable insights to help you achieve your goals, like learning how much small businesses spend on marketing and how to budget for it effectively.
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Table of Contents
Things To Consider When Determining Marketing Costs for Small Business
Balancing Online and Offline: Find the Right Marketing Mix for Your Business
What is the Average Marketing Cost for Small Business?
Marketing drives sales and connects your brand to new customers. According to the Small Business Administration, small businesses typically spend around 1.08% of their revenue on advertising, although this can vary depending on the industry.
Business-to-consumer companies, for instance, often allocate 9.6% to product-based businesses and 11.8% to service-based businesses. For example, if your small business generates $100,000 in annual revenue and you allocate 8% to marketing, your yearly marketing budget would be $8,000.
New vs. Established Businesses: Different Marketing Needs
Newer businesses need to spend more on marketing to build awareness. However, as your business grows, you can fine-tune your budget. Cutting marketing expenses during slow periods can be risky and may further hurt sales. Instead, consider increasing your marketing efforts when competitors might pull back.
Flexibility for Marketing Performance
Marketing should be viewed as an ongoing investment in consistently attracting and retaining customers, so flexibility and monitoring industry benchmarks are key.
How To Plan Your Small Business Marketing Budget
Determine Your Business Goals Before Budgeting for Marketing
Establishing your business’s goals is the first step to creating a marketing budget. You need to know what you want to achieve to set a budget to achieve those goals. You can set goals that focus on:
Earning more sales
Increasing leads
Earning more subscribers
Increasing brand awareness
And more
When you set your business’s goals, ensure they’re specific and intelligent. You don’t want to set a goal like “increase sales.” It won’t give you a precise target to work towards and achieve. Instead, set a goal like “Increase sales by 20% by the end of the year.”
Setting Measurable Sales Goals
This goal is easily measurable and gives your team something precise to achieve. It’ll also give you a concrete reference point when budgeting for marketing because you know how much you want to increase sales and the timeline for achieving that increase versus just knowing that you want to increase sales.
If you want to learn how to prepare a marketing budget properly, start by adding your overall business goals. This will help you invest in the right marketing methods to help you reach your goals.
Establish Your Sales Cycle
When you create your marketing budget plan breakdown, you want to establish your sales funnel. Your sales funnel is critical to your marketing budget because it determines where you will spend your money. It is the process your audience goes through to become a paying customer.
A typical sales funnel will have four stages:
Awareness: Your audience becomes aware of their problem and starts looking for solutions.
Consideration: At the consideration stage, your audience looks at the options available.
Decision: When a lead reaches the decision stage, they narrow their focus on companies that provide the best solution or product for their needs.
Action: Once a lead reaches the action stage, they choose your business and become customers.
Identifying Bottlenecks in Your Sales Funnel
Understanding your business’s sales funnel helps you see where you may need a digital marketing strategy to help you keep more people from falling out of the funnel. For example, let’s say you notice that your business’s funnel has many people at the consideration stage, but very few make it to the decision stage.
While some drop-off is natural, you notice that the decline is more significant than what I’d expect. As a result, you may need to budget more money for strategies that will help get leads from the consideration stage to the decision stage.
Understanding Your Sales Cycle for Effective Marketing Budgeting
Strategies like video marketing, pay-per-click (PPC), and social media ads may help you push those leads down the funnel. So, to help you understand how much you need to budget for marketing, you need to understand your sales cycle. Knowing your sales cycle will help you anticipate strategies you need to invest in, which will help you budget for your marketing plan wisely.
Know Your Outside Costs
If you want to know how to prepare a marketing budget plan, start by establishing your external costs. You need to know how much everything costs your company so you know how much you can allocate for marketing.
So, what are the outside costs you need to consider?
Operational costs (creating products, shipping them)
Costs for employing staff
Costs for running your business (electricity, water)
And more
Calculating Your Cost of Goods Sold (COGS)
You must consider these costs when creating your marketing budget plan. This not only determines what services you can invest in but also helps you set a baseline for your return on investment (ROI). So, for example, let’s say it costs your business $10 to produce your product. You sell your product for $50.
So, when choosing marketing methods for your business, I have an idea of how much I want to spend to still profit from your item. This information will help guide me to strategies that allow me to get the best ROI for your business.
Understand Your Market
You need to know where you fit in your market to build an effective marketing budget plan. When you understand how you stack up against your competition, you can better establish which strategies you need to use to compete with them. You’ll want to do a competitor analysis to see how your competition performs online.
Leveraging Competitor Analysis for Strategic Marketing
I can even use competitor analysis tools to help me see where your competition currently succeeds online. This can help me determine which strategies to budget to drive success. I can use a competitor analysis tool to analyze competitor campaigns and get ideas for my own campaigns or use social media monitoring tools to keep track of what people say about competitors on social media.
Get an Idea of What Strategies You Want to Use
An essential component of preparing a 2024 marketing budget is choosing your strategies. You don’t need to be 100% sure about the strategies you want to use, but you should know which strategies seem best for your business. You can use numerous digital marketing strategies, including:
SEO Services
SEO boosts your website’s rankings in search results to drive more relevant, organic traffic to your page.
PPC Advertising
PPC ads are paid advertisements at the top of search results pages and on other web pages. These ads allow you to reach more leads that are ready to convert.
Social Media Marketing
Social media marketing lets you connect with your audience one-on-one and deliver informative content. This strategy allows you to build relationships with leads and nurture them into customers.
Social Media Advertising
If you invest in social media advertising, you’ll focus on creating compelling ad copy targeted at specific leads. These ads appear seamlessly in their newsfeed, allowing you to build brand recognition and earn more leads.
Email Marketing
Email marketing enables you to nurture leads towards conversion by sending them tailored content that fits their interests. You can send:
Promotional emails
Exclusive deals
Abandoned cart reminders
And more
Content Marketing
Content marketing enables you to drive more leads to your page by sharing valuable information with your audience. Whether it’s blog posts or videos, you can share your knowledge with your audience and establish yourself as an authority in your field.
Local SEO
With local SEO, you optimize for local keywords and claim your Google Business Profile listing to help drive more local traffic to your business. When creating a marketing budget, you’ll want to know which strategies you wish to use for your business.
When you know which strategies you want to invest in, you can determine how they will fit into your marketing budget plan. That brings us to our next critical component of planning a marketing budget.
Research Strategy Prices
Whether you run your campaigns independently, hire a freelancer, or hire a digital marketing company, you need to know how much it costs. Your marketing budget breakdown should focus on how much each strategy will cost your business. First, you must determine who you want to handle your campaign:
In-house
If you decide to stick to your in-house team, the cost will come from salaries and materials you need to execute your campaigns. You may still need outside help or invest in tools that enable you to manage your campaigns.
Freelancers
Freelancers specialize in one type of strategy or dabble in a few of them. If you hire a freelancer, you typically pay by the hour or on a per-project basis. The prices may be higher if the freelancer is more experienced or uses software, which they include in their rate.
Digital Marketing Company
If you hire a digital marketing company, you will get everything you need, from tools to people. Unless, you’re doing a one-off project, you will pay per month to keep a digital marketing company on retainer.
If you're busy running your business, you should rely on a digital marketing company. This allows you to reap the benefits of having a marketing plan and someone to manage your budget while you worry about other aspects of your business.
How much do professional digital marketing services cost? To help you get an idea, here’s a range for how much you should expect to pay for online marketing strategies from a digital marketing company:
SEO: $500-$20,000+ per month
PPC: 5-20% of monthly ad spend
Content Marketing: $2000-$20,000 per month
Social Media Marketing: $250-$10,000 per month
Email Marketing: $300-$2500 per month
These prices will vary depending on your business and what you need. Knowing these costs will help you prepare a marketing budget and use the strategies that will drive the best results for your business.
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• How Much Does Marketing Cost for a Startup
• In House vs Outsourcing Marketing
Things To Consider When Determining Marketing Costs for Small Business
Revenue: Your Business's Marketing Budget Best Friend
Creating a marketing budget as a percentage of your revenue is a common way for small businesses to know how much they should spend on marketing costs. Nevertheless, even with a smaller revenue, you may need to spend more on marketing to increase sales and hit your financial goals.
Similarly, just because you have a six- or seven-figure revenue doesn’t mean you necessarily need to spend a significant percentage of your income on marketing.
Industry: What Marketing Costs Can You Expect to Pay?
A 2020 survey completed by Deloitte identified the average percentage of revenue to budget for marketing by industry. The survey found that business-to-consumer companies spend more on marketing than business-to-business companies.
Service-based businesses also spend differently than product-based businesses. This is because each industry has different marketing needs. Suppose you are targeting a homeowner as a service-based business. You should spend more money on search engine marketing than a business-to-business software company that builds relationships on LinkedIn.
Do industry research to see what is typical for your space and set your expectations accordingly.
Stage of Business: How Your Business's Age Affects Marketing Costs
Stage of business matters significantly when creating your budget. Startup companies have a lot of upfront marketing investments that they’ll need to make to get their name out there. They’ll want a website, social media profiles, and potentially some ad spend as they start marketing.
Nevertheless, since startups don’t have as much capital at the beginning of their business, they might consider a smaller marketing budget and DIY some of their marketing to save money.
Aligning Marketing Budget with Business Stage and Growth Goals
Marketing expenditures for established companies will also differ significantly, as they may adjust their spending as their sales revenue increases. The key here is to consider what is realistic for your business stage and compare that with the goals you want to achieve. If you’re going to grow and scale fast, prepare to allocate a higher marketing budget.
Target Customer: How Your Ideal Buyer Affects Marketing Costs
The niche market you are targeting will also impact how much your marketing spend should be. Ask yourself, who is your target customer, and where do they spend their time? How much effort will it take to get in front of them? The answers to these questions will help you consider how much you’ll need to budget to attract suitable leads.
For example, are you a remodeling contractor targeting families in the top 10%? You’ll likely need a higher marketing budget to invest in targeted paid ads or video campaigns showcasing your luxury projects and expertise.
On the contrary, if you are a handyman targeting the general population, you may succeed with a lower marketing budget and using free or low-cost channels like Facebook Groups to generate leads.
Competition: What Are Your Rivals Spending on Marketing?
What are your competitors doing? One of the best ways to identify how much you should spend on marketing campaigns is to see what the competition is doing to increase sales. For example, are your competitors doing pay-per-click advertising on Google? Are they showing up in Local Service Ads as Google Guaranteed Providers? Do they have a solid social media presence? Are they doing email marketing?
Conduct in-depth research to see all the different places your competitor is marketing. This will show you how much they may invest in marketing.
Goals: What Do You Hope to Achieve with Marketing?
What do you want to achieve as a small business? What are your goals? Do you want to serve as many customers as possible? Would you like to hire and scale? Do you want to maintain your steady stream of income simply?
All of these questions will determine how much your total budget should be.
How To Allocate Your Marketing Budget
Last year, businesses in the US alone spent a total of $270 billion on digital marketing. Experts believe that this number will reach $450 billion by 2028. Digital marketing has become a critical component of modern advertising, covering channels such as:
Google Ads
Allocate your budget to targeted search ads that reach potential customers actively searching for products or services. This is a high-impact but sometimes costly method, so set daily limits based on your revenue.
Social Media Marketing
Platforms can raise brand awareness and drive sales:
Facebook
Instagram
TikTok
Organic growth could be faster, so expect to spend on paid ads, particularly for newer or smaller businesses. If your target audience is active on these platforms, social ads should make up a significant portion of the budget.
SEO (Search Engine Optimization)
Invest in SEO to enhance long-term visibility. This budget can be used for:
Website optimization
Content creation
Link-building strategies
SEO offers a more sustainable, long-term benefit.
Content Marketing
Content marketing, which includes blog posts, videos, and articles that align with your brand’s voice and goals, is a powerful tool for driving organic traffic. Allocate resources to quality content creation that builds trust and authority.
Email Marketing
Dedicate part of your budget to building and maintaining an email list. This cost-effective method involves creating campaigns and newsletters that convert leads and build customer loyalty.
Offline Marketing Budget: The Importance of Traditional Advertising
Traditional advertising methods still play a crucial role, particularly for local businesses looking to build community connections. Traditional advertising aims to boost sales and raise brand awareness using approaches and strategies that aren’t internet-based. According to expert estimates, global non-digital advertising reached $306.8 billion in 2023.
Local Newspapers and Trade Publications
Advertising in local papers can boost brand awareness in the community. Trade publications help establish authority in niche industries, often costing less than broader media outlets.
Radio and Television Ads
For small businesses, local radio stations offer cost-effective reach within a community. TV ads provide credibility and broad visibility, but costs are higher, so allocate funds based on expected returns and audience reach.
Business Cards and Branded Goods
Invest in print media like business cards, T-shirts, and other branded merchandise. These items, while inexpensive, can be impactful in increasing brand recognition and establishing a professional image.
Balancing Online and Offline: Find the Right Marketing Mix for Your Business
A balanced marketing budget may dedicate 70 percent to digital channels and 30 percent to offline efforts, depending on your business type and audience. If your business is primarily digital (like an eCommerce site), a higher percentage should go toward online marketing. Local service providers or brick-and-mortar stores may benefit more from offline strategies.
Start with small, measurable campaigns, track performance, and adjust your budget allocation as your business grows and your needs evolve.
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Making the Most Out of Your Marketing Budget
Setting the right goals helps you choose the marketing methods that will work best for your business. Defining a target for your marketing campaign with a respective timeline allows you to select the best activities to reach your goal.
For example, paid ads will be the way to go if you need a short-term win because they can provide instantaneous results. And if you need a short win, the paid media template is a serious advantage. Otherwise, you can play the long game and have potential customers find you organically by investing in content development and SEO.
Know Your Customer Inside Out
Optimizing your marketing strategy requires knowing precisely the type of customer most likely to purchase your products or services. Everything else is more accessible when you know precisely who you are targeting because today’s marketing tools and platforms help you narrow your search to the exact characteristics you are looking for.
The first step to identifying your ideal customer is to define a specific customer segment of your business. For example, owning a toy store may have multiple segments according to gender or age. In contrast, if you have a business that sells bathing suits to pregnant women, that probably counts as only one segment.
After choosing your segment, you can identify the characteristics defining your ideal customer. This information includes:
Age range
Marital status
Income
Education
Employment
Job title
Roles and responsibilities
Family type/size
Household income
Budget
Buying habits
Along with identifying these demographic characteristics, you can also dive deep into the possible psychology of your ideal customer. Here are some questions:
What are your ideal customer’s pain points?
What keeps them up at night?
Where do they turn to for advice on the internet?
What websites and social media platforms do they use?
How can your products and/or services improve their lives?
Your online advertising budget will have much better results when you know exactly who you are targeting. Defining your buyer persona also helps you create better content on your website that speaks to their needs and builds trust in your products and services. The key to making it work is to use an inbound marketing strategy that attracts customers to your website, which brings us to the next tip.
Maximize the Power of Inbound Marketing
Outbound marketing uses aggressive sales techniques to convince you to buy a product or service. Inbound marketing works in the opposite direction by creating a “pull” factor that leverages a targeted content marketing strategy to bring customers to you. Using inbound marketing is more cost-effective because it helps you zero in on ideal customers while they are in the process of searching for the products and services you are selling.
Some key components of an inbound marketing strategy include:
Audience Engagement
The first step in any inbound marketing strategy is to engage your audience. Think of this stage as what happens on the dating scene: the first goal is to establish attraction, but you need to start a conversation to keep someone interested. The same goes for audience engagement.
Lead Generation
The next step in inbound marketing is to generate leads. With so much content on the internet, this can be challenging at first. The key is to know your customers inside and out and to create:
Blog posts
Videos
Guides
Other content that speaks to them
Selling on the internet lacks a “human factor,” so you must establish trust by creating content authentically connecting with them. This is the stage where you start the conversation with your leads. It’s an opportunity to:
Ask questions
Take notes
Refine your content strategy
Use quizzes and surveys on social media to get your audience to open up and give you valuable insights. It's a chance to learn about them and respond with informative content demonstrating you are a trusted voice in your industry.
Conversion Into Satisfied Customers
Once your audience is engaged, your next task is to convert them into customers and delight them with your offerings and after-sales service. This is also an opportunity to transform your customers into delighted fans who will leave reviews and comments on your:
Website
Social media
Third-party review sites
Build Community Connections
Engaging with the local community enhances brand visibility. Focus on activities like:
Attending events
Participating in festivals
Supporting local causes
Building Strategic Business Partnerships
While you want to get involved with the consumers, connecting with businesses can be huge. A membership with your local chamber of commerce will likely help you make invaluable business connections. Take it further by partnering with businesses in related markets to develop giveaways and group promotions.
What companies are your target customers and clients already doing business with? Which businesses would your customers and clients benefit from learning about? Partner with these brands to maximize your reach and help promote other local businesses.
Get a Free Custom Plan on How to Delegate Tasks and Scale
Startups and small businesses often struggle to find their footing in marketing. First, they must figure out exactly what type of marketing will help them grow. Then, they’ll need to create a plan to execute their strategy. Next comes the hard part: finding the right people to carry out their marketing plan.
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