Part 8: How Much Should a Small Business Spend on Marketing?

Lure Creative is a digital marketing company in Kansas City. We help small to medium-sized businesses Get Found & Be Known. In our adventures, we’ve found that many small to medium-sized business owners have questions about marketing, marketing budgets, and just what it takes to grow their business in this digital/online world. We have answers! So we decided to try to answer some of those questions in an ongoing series of blog posts. Part 8 of our Small Business Marketing Questions Answered series focuses on a common question: 

How Much Should a Small Businesses Spend on Marketing?

You can’t build a marketing plan without first having a marketing budget in place.  Because we work with small businesses, we know there is never enough money in the budget. How do you know how much of that limited budget you should spend on marketing? The good news is, it’s not too tricky. There are some rules of thumb you can follow. Depending on your comfort level, your goals, and your market, each company will have a different sweet spot. Here are five guidelines you can use to help narrow it down:

Five General Marketing Budget Guidelines

  1. Start with a General Overview – Broadly speaking, a marketing budget typically ranges from 5 to 25 percent of a company’s revenue or revenue targets. Each company is different, so size, stage of growth, and the importance of marketing on sales within your industry will all be factors to consider.
  2. Tried and True Rule-of-Thumb – There is a general rule in the marketing world that you should aim at spending between 2-5% of your sales revenue on marketing.
  3. Look at Growth Goals – Consider your company’s growth stage as it is the most important factor in deciding the size of your marketing budget. If you simply want to maintain your market position, budget 2-10% of revenue goals towards marketing. If you are looking to grow more than 50% (fast-growth stage), budget 15-30% of your projected revenue for marketing.
  4. Use National Guidelines – The U.S. Small Business Administration offers this advice. It recommends spending 7 to 8 percent of your gross revenue for marketing and advertising if you’re doing less than $5 million a year in sales and your net profit margin, after all expenses, is in the 10 to 12 percent range.
  5. Use Insights from Larger Consulting CompaniesGartner’s 2020 CMO survey confirms most marketing budgets are roughly 11% of the total company budget.

Other Budget Considerations:

Not every year will be the same for your business. Budgets can be scaled accordingly. Here are some things to consider when setting your budget:

  • ​​If  you are launching a new product or service, advertising and publicity needs will be higher, so the percentage will increase.
  • Determine your target and focus on the channels that deliver proven (ROI).
  • SEO and search advertising are high-performing strategies with relatively low costs, so even companies with a limited marketing budget can be successful. We specialize in HVAC SEO, Flooring Contractor SEO, Plumber SEO, Electrician SEO, Healthcare SEO, Local SEO, Architect SEO, and more!
  • Look at your industry specifically and consider what your competition is spending.
  • Make sure the basics are covered. Your first priority should be a strong website that converts and an SEO strategy to make sure your website is being found by searchers.
  • Pay special attention to mobile marketing – people spend a lot of time on their smartphones. Make sure your website design and SEO favor mobile use. Google is making mobile friendliness a priority. 

These are just some of the considerations that will help you determine the right marketing budget for your company.  It’s tough being a small business owner and we hope this information will help you make the right decisions to make your business grow. If you have questions, please feel free to contact us at Lure Creative. We’d like to be your marketing partner and help you Get Found and Be Known.