Are you planning to set an effective marketing budget for your small business? The increasing level of competition in the digital market makes it crucial to allocate a budget for marketing that allows you to have a strong presence and stand out from your competitors.
If you are interested in knowing how you can maximize your revenue with marketing strategies and optimal resources it is essential to learn how to set a marketing budget. Here we tell you about it!
What is a marketing budget?
The marketing budget is allocating a certain amount of money to marketing strategies such as advertising, image, digital positioning and social media.
The marketing budget can be considered a “limit or parameter” that prevents the small business from spending more or less money than a successful marketing plan requires.
The marketer’s job is to take that budget as a guide to optimize the resources and efforts needed to reach their ideal client and increase sales.
Why is it important to set a marketing budget for my business?
You might be wondering why it’s important to set a marketing budget for your business when your goal is growth and increased reach. Creating a budget isn’t just about the money; it’s about the effectiveness and precision of your investments.
Establishing a budget will prevent you from spending more money than you can afford to invest, causing the opposite effect, instead of growing in the long run you will be decapitalizing your business.
However, if you establish a well-planned budget the result you will have is:
- A close relationship with your potential customers
- Differentiate yourself from the competition
- Increase your sales
- Reach your growth goals in a controlled and calculated way
How much should you set for your marketing budget?
According to the U.S. Small Business Administration (SBA) a small business should spend approximately 8% of its gross revenues on marketing strategies.
The recommended approach for businesses that are just starting out is to invest a bit more, around 15% of your gross revenue, as stated by Salesforce. This is because you haven’t yet established brand recognition among potential customers.
However, if your business does not have the capital to invest any of these percentages, you can start with the average percentage that small businesses are currently spending, Small Business Trends indicates that it is between 2% and 4% of their revenues.
Here is a step by step guide to set a your Marketing Budget for your small business:
Step 1: Define Your Marketing Objectives
When you’re setting up your marketing budget, it’s not just about throwing money at ads and hoping for the best. You need clear objectives in mind. These objectives can vary widely – it could be about boosting sales, getting your brand recognized, expanding to new areas, dominating the digital space, driving more traffic to your website, and more.
To help you nail down your marketing objectives, ask yourself some key questions:
- Who are your potential customers, and what do they want?
- Where do your potential customers hang out online or offline?
- Does your target audience recognize your brand over your competitors?
- Are you looking to sell locally, nationally, or internationally?
- What sets your business apart, and why should customers choose you?
- What marketing channels are you already using effectively?
A handy approach for setting these objectives is the SMART method:
- Specific: Make your objectives incredibly detailed.
- Measurable: Have ways to measure if you’ve achieved what you set out to do.
- Achievable: Be realistic about what your company can do, especially regarding the timeframe.
- Relevant: Focus on the most relevant objectives with the biggest positive impact.
- Timely: Set specific deadlines for achieving your objectives – this makes it easier to track progress and plan your actions.
Step 2: Analyze Your Company’s Finances
Before diving headfirst into your marketing budget, take a close look at your company’s financial situation. This step ensures that your marketing plans align with your financial capabilities.
Here’s a straightforward way to go about it:
List all your income sources – whether monthly or annually – and calculate the total gross income.
Decide on the percentage of your gross income that should be allocated to marketing. List all your expenses, including taxes and salaries, and subtract this from your gross income. If your net income shows you can comfortably operate your business, that’s the ideal percentage for your marketing budget. If not, you might need to try different percentages until it fits within your financial constraints.
Step 3: Analyze Your Competitors
Understanding what your competitors are up to can be a goldmine of information when determining your marketing budget. Here’s how to do it:
- Identify your top three competitors both in digital and offline spaces by searching for your product or service on platforms like Google Maps and search engines.
- Compare the information available on their stores, social media, and websites to get a sense of their business approach.
- Analyze their distribution and communication channels – figure out if they’re selling online, have a website, or use social media.
- After this research, consider performing a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) on each competitor, including your own business. This can highlight areas for improvement and potential challenges to address.
Step 4: Seek Marketing Service Providers
Sometimes, it’s best to leave marketing strategies to the experts. Look for marketing service providers and compare their expertise and pricing. A reputable provider can help you create a tailored strategy that aligns with your goals and uses various channels and organic media.
Remember, it’s quality over quantity when choosing a marketing service provider. Don’t just go for the cheapest option; prioritize finding a team that delivers effective strategies and services.
Step 5: Adjust Your Marketing Budget as Needed
Your marketing budget isn’t set in stone. It’s crucial to adjust it periodically based on your objectives and brand growth. Having a marketing expert on your side can be incredibly valuable here. They can keep you updated on the success of your marketing investments and advise you on when and where to adjust your budget and strategies. Stay flexible and open to change as your business evolves.
What is ROMI (Return On Marketing Investment) and how to calculate it?
ROMI stands for “Return on Marketing Investment.” It’s a bit like ROI (Return on Investment), but specifically focused on your marketing efforts.
ROMI helps you figure out how effective your marketing campaigns or activities are at generating revenue. It measures the profit you make in comparison to the amount of money you spent on marketing.
Here’s a simple way to think about it: If you spent $1,000 on a marketing campaign and it brought in $5,000 in revenue, your ROMI would be 5:1. This means for every dollar you invested in marketing, you earned five dollars in return.
So, ROMI helps you understand whether your marketing efforts are worth the money you’re putting into them. If your ROMI is high, it’s a good sign that your marketing is working well. If it’s low, you might need to rethink your marketing strategies.
Remember, it’s a valuable tool for businesses to make informed decisions about where to allocate their marketing budget and which strategies are delivering the best results.
ROMI is calculated as follows:
(Profit – marketing budget) x 100 / marketing budget.
The tricky part of determining the ROMI is to know what the real earnings were thanks to the campaign, so it is important to determine from the objectives the period of duration and the KPIs to be used for measurement.
Some of the most common KPIs are:
- Sales
- Visits to the website
- Clicks on the link
- Landing page conversions
Average budget spent on marketing by different industries
Understanding the average budget spent on marketing by different industries can be really beneficial for several reasons:
- Benchmarking: It gives you a benchmark to compare your own marketing budget against industry standards. This helps you assess whether you’re overspending or underspending in your specific sector.
- Informed Decision-Making: It helps you make informed decisions about how much to allocate to marketing. Knowing what your competitors or similar businesses are spending can guide your budget planning.
- Competitive Advantage: If you discover that your industry peers are investing significantly less in marketing, it might present an opportunity for you to gain a competitive advantage by strategically increasing your marketing spend.
- Resource Allocation: It helps you allocate your resources effectively. Knowing the industry averages can help you decide where to focus your marketing efforts and which channels to prioritize.
- Realistic Expectations: Understanding industry benchmarks can also help you set realistic expectations for the outcomes of your marketing efforts. If your industry typically invests a certain percentage of revenue in marketing, you can anticipate the kind of results you might achieve with a similar investment.
- Goal Setting: It aids in setting achievable marketing goals. By knowing what’s typical in your industry, you can set goals that align with industry standards and are more likely to be realistic and attainable.
- Trend Analysis: Tracking changes in industry averages over time can also help you stay ahead of marketing trends. If you notice that marketing budgets are increasing across your industry, it might signal a shift in consumer behavior or competition that you need to adapt to.
So, understanding the average marketing budget in your industry isn’t just about comparing your business to others´. It’s a strategic tool that can help you make better decisions, allocate resources wisely, and ultimately improve the effectiveness of your marketing efforts.
According to a study by Deloitte and CMO Survey, consumer packaged goods, consumer services and tech software/ biotech are the industries that allocate the highest percentage to their marketing budget.
Here you can find the full research study: http://deloitte.wsj.com/articles/who-has-the-biggest-marketing-budgets-1485234137
According to the same Deloitte and CMO Survey study, the average budget spent by different industries on marketing is distributed as follows:
Source: https://merehead.com/blog/average-marketing-budget-different-business-areas/
In summary
Knowing how to set a marketing budget for your small business is critical for success. It requires knowledge about your potential customers and direct competitors. It is also important to define objectives and goals before beginning to allocate the budget. Additionally, it is highly advisable to have an expert marketing agency accompany and advise you in the process of growing your business.
Marketing is a world in constant change and evolution, and it is necessary to adapt your business to new changes in order to maintain a strong and recognized brand.
