This Week's Question: I'm not sure how much money I should spend on marketing. What should my budget be?
I'm not sure how much money I should spend on marketing. What should my marketing budget be?
This is a question we hear all the time from small businesses. As a small business owner, you probably don't even have a budget but you know you need to spend money on marketing. The question is, how much money should you spend?
A marketing budget really isn't an abstract concept. It's spending real money, you don't want to spend too much, you don't want to spend too little, so what's the right amount to spend on your marketing? If this is a question you have, keep watching!
I'm Tom Malesic, founder and President, of EZMarketing, a marketing company in nearby Lancaster, PA, and you're watching Ask EZ. This is where small business owners go to get real answers to their marketing questions.
marketing budget approaches
There are three approaches that I commonly see for small business owners. The first approach is when an opportunity comes along you decide am I going to spend the money or not. So in other words, you have no plan, and you have no budget. The second approach is you pick a number and figure out what you can afford to spend in your budget. So you have a budget, you need to create a plan. The third approach is you know what you want to do and now you have to figure out what does it cost. So in other words, you have a plan, and you need to create a budget.
Over the years you've probably tried all three of these approaches at one time or another, let's dig into each approach and how do you really do it.
approach 1: no plan, no budget
Let's talk about the first approach. This is when the opportunity comes along you find the money. So you have no plan, no budget. This is the one that I see small business owners do the most. You think it allows you flexibility and quite honestly you're open to new ideas.
But what it really means is you don't have a plan for your marketing, and it's too easy to waste money on the next great thing that just comes along. This is my least favorite approach to having a marketing budget.
approach 2: have budget, create plan
Approach number two is you pick a number and figure out what you can afford in your budget. But what number should you pick? The Small Business Administration says, that you should spend between 7 and 8 percent of your top-line revenue on your marketing budget. You might say that sounds like a lot of money, because in most cases, you're just picking that number right out of your checkbook.
Most small businesses only spend about 1% of their annual revenue on their marketing budget. And we all know that a tiny budget means you can only do one or two things, so you're really putting all your eggs in one basket.
approach 3: have plan, create budget
Approach number three is I know what I want to do, how much is it going to cost? Rather than thinking about how much do I want to spend, think about how much do you want to grow your business.
If you're relying on referrals and you don't really need to grow your business much and you're happy with where you are, you don't really need to spend a lot of money. But if you're really looking to grow your business, then we're going to need to spend more money, so that we can get the results that you want for your marketing.
are you b2b or b2c?
Here are some variables that might affect how much you should spend on marketing. Are you a B2B business or a B2C business? If you're a B2B business, you might get away with spending a little less on marketing. Maybe you're doing more networking, more trade shows, and events. But a B2C business has a much wider audience and you might need to do more advertising, which consequently, costs a little more.
Or your budget might be influenced by your industry or the amount of competitors that you have. Some industries are just more competitive, and it kind of goes without saying that the more competitive your industry is, the more you're going to have to spend on marketing just to get noticed.
Once you get started with marketing, don't stop. We see too often that businesses will stop marketing when things get slow, or sometimes they stop when things get too busy. Growing your business is really like rolling a big boulder up a hill. If you stop, it's much harder to get it started again. And it's even harder, to stop it from rolling backwards.
Here's your homework:
Next with that, I want you to write down all the costs associated with the marketing activities you're going to do. That might be social media, it might be building a new website design, maybe you're going to do some search engine marketing, we need to know what everything's going to cost.
If you need help with the plan right below this video, you can download a link to our easy to use marketing template (click below) to help you with this. If you like this video, please don't forget to like and subscribe.
When you're talking with marketing agencies in Lancaster, make sure you keep us in mind. Our marketing agency specializes in working with small businesses to help them compete with larger competitors.