How much should I spend on marketing?
That question can be a tough one for any small to medium-sized business (SMB) to answer. But it doesn’t have to be a stumper—and it shouldn’t prevent you from launching a killer marketing campaign.
Here are a few things to consider before creating your marketing budget.
The average (and why you shouldn’t trust it)
According to a study by Sageworks, the average SMB spends 1% of its gross revenue on marketing, and that rate has remained steady over the last few years.
But before you stop reading, that number may not be right for you. Bear in mind, the data covers a wide range of SMBs across many industries, from retail to manufacturing—leading to some big discrepancies between the average and the reality. In retail, for example, companies tend to spend at least 4% or more on marketing, while manufacturers and wholesalers often dedicate less than 1%.
So what should I base my marketing budget on?
According to the U.S. Small Business Administration, companies that make less than $5 million in yearly sales and have a net profit margin of 10 to 12% (after expenses) should spend 7 to 8% of their gross revenue on marketing. It’s a smart tactic, since you can adjust for rising or falling profit margins, and it’s the prevailing trend in the SMB world.
If your company is a startup or still relatively small and your profit isn’t quite up there yet, consider opting for a smaller percentage, like 2 to 5% of your gross revenue. Of course, if you’ve been in business for a while and have a solid foundation, you may be well-situated to spend more.
In an especially competitive market, you may want to spend up to 10 or 20%. And if you’re looking to grow or increase market shares, the same holds true.
Find the budget that fits you
Clearly, there’s no one solution for calculating a marketing budget. In deciding how much to spend on marketing, you’ll need to consider factors like the competitiveness of your field, your company’s short- and long-term growth goals, and how much you expect to spend in other categories, like staffing and inventory.
One thing remains constant, though: you can’t afford to not budget for marketing. Even a modest amount of marketing can drive revenue and grow your company—while a complete lack of it can kill business quick.
At the end of the day, these recommended numbers are just guidelines which you can use as a basis for your calculations. As you pursue your marketing efforts, be sure to track how much you’re spending so you can adjust as necessary. Before you know it, you’ll have a solid budgeting system in place and can focus all your attention on getting your brand out there!
Looking for cost-effective marketing strategies? At Liqui-Site, we’ve helped countless SMBs get noticed—without breaking the bank. Contact us today to find out more about how we can help you.