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How Much Should You Set Aside for Marketing Expenses as a Small Business Owner?

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How Much Should You Set Aside for Marketing Expenses as a Small Business Owner?

Managing the marketing expenses is one of the important things a small business owner should put attention to. The general rule of thumb is that businesses should set aside 10% of incoming revenue to invest in marketing. However, experts estimate that small businesses spend about 1% of gross revenue on marketing. One Entrepreneur.com article puts the estimate closer to 4% of gross revenue for 62% of small businesses.

Statista prefers to analyze it the way most business owners do: specifically by dollars and cents. It estimates that up to 47% of business owners spent less than $10,000 on budgeting in 2017. The companies that spent between $10,000 and $100,000 made up 25%. Entrepreneur.com also offers a dollar-value estimate that works out to roughly $400 per month.

Marketing cost for Start-ups

How much small business owners spend and how much they should spend on marketing aren’t quite the same thing. So, as you put pen to paper to refine your marketing budget for 2020 and the years beyond, note that the Small Business Administration recommends spending anywhere from 7% to 8% of gross revenue on advertising and marketing.

If you own a small startup or you’re just getting established in the market, 2% or 3% suffices. Businesses that operate in extremely competitive industries should consider spending up to 20% of their revenue on marketing.

Factors Affecting Marketing Costs

Every business is different, so there are some additional factors to consider on an individual basis. These help you to better fine-tune your marketing budget to suit your specific needs:

  • Business Goals: How much money you need for marketing depends on what your goals are for the business. This determines the type of marketing strategies you need, which then inform the price.
  • Marketing Strategies: Sometimes marketing strategies are a matter of preference. Some companies find many free, unique and effective options to cut marketing costs.
  • Business Size: As alluded to above, if your business is new, you may need revenue to pay for more pressing expenses, so aiming lower on a marketing budget is understandable.
  • Business Stage: For the first six months of business or when you need to jumpstart sales, consider investing up to 20% in marketing and advertising to reach your audience. 
  • Past Experience: If your business has been open for at least six months, you likely have some marketing data to work with to better decide how much money correlates to the results you need.

Where Should Small Businesses Spend Their Marketing Budget On?

Digital marketing remains the most cost-effective way to reach a global audience. Not surprisingly, small businesses are focusing a lot of their resources on digital marketing. Entrepreneur.com estimates that companies spent about 35% of their marketing budgets on digital strategies. These include paid search, email marketing, display ads and social media.

Because the ROI is also higher for digital marketing, companies are increasingly shifting their budget to include more of this. In fact, one survey found that roughly 70% of small businesses intend to increase their revenue spending on this.

Best Way to Plan Your Marketing Budget

The traditional marketing strategies that best align with your business depend on the business itself. In fact, some companies have no traditional marketing strategies at all. This is especially common for small businesses that operate entirely online, such as independent e-commerce websites or even professional sellers on established websites.

When it comes to digital marketing, virtually every company can benefit. Most companies spend their digital marketing resources — which include not just money but also time — on social media marketing. Some of the most commonly used channels include LinkedIn, Facebook and Twitter. This is also where they spent the majority of their marketing dollars.

As more consumers use mobile devices to access the internet, more companies are also investing in mobile marketing. These types of ads are designed for much smaller screens and tend to show in apps or on mobile browsers.

Another key focus is content, which can offshoot into many different strategies as well. Content is the basis of search engine optimization, for instance. Without written content, companies would struggle to master search engine rankings. SEO is also useful in video marketing, which is another form of content. To add to this, email marketing relies on content to engage people on the email list to either keep reading or take conversion actions.

Key Takeaway

If you believe that time is money, there is no such thing as free marketing. Every business owner must invest either time, money or both into marketing strategies to attract more customers. The more time a business owner or manager spends trying to micro-manage the marketing process or do it themselves, the more time they lose that they could have spent on the operational end of the business.

Another key factor to note is that marketing professionals require less time and money to yield the same results business owners can on their own. This is why it’s usually best to invest in their expertise.

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