How Much Should My Marketing Budget Be?

How much should my marketing budget be?

Do you have a marketing budget for your business? Are you relying on the free channels only? If you’re not investing in marketing your business, you’re missing out on opportunities, sales, and additional profit. Sure, you can build a business only using free marketing channels, but there’s the power behind the paid channels. If you want to go faster or build bigger or reach more people, you need to spend some money. How much should your marketing budget be? 

Start by establishing a marketing budget

A good rule to start with is to establish a marketing budget period. Many small businesses don’t have a set budget, and that makes it hard. They’re trying to evaluate every marketing opportunity as it comes, and they don’t know where to invest their funds. When you have a set budget for the year, it’s much easier to review the opportunities that arise and determine if they’re a good use of funds. 

Start with 5% of your revenue. If your business generates $10,000 in revenue, allocate $500 to marketing when you generate $20,000, move it up to $1,000. Is that a small number, yes. Is it going to make a huge impact? Probably not. But it’s going to allow you to get started and begin to feel comfortable with spending something on marketing. 

Ideally, 10% would be better. For every $1,000 in revenue, allocate $100 for marketing. You need to market your business to keep growing continually. 

Free stuff works but it shouldn't be your only marketing channel

So many small business owners avoid setting a marketing budget. I’ve talked to so many over the years who’ve said, “we’re going to focus on social media, it’s free,” but they miss out on other opportunities because they don’t have the budget in place to supplement their social media efforts. Social media can help grow a business, but it shouldn’t be relied upon entirely because you don’t control your social media audience. If you build your social media following by thousands of people, you’re dependent upon them for your business, and what happens if they change the algorithm, and suddenly people don’t see your posts? It happens—every day. The social media channels are businesses, and they have investors to report to the same as any other large company. They are going to do what makes the most profit for their shareholders. They’re not going to show your posts for free because they want to be kind to you. It doesn’t happen that way anymore. 

Start small, 5-10% of your revenue should go to marketing. In time, you may need to increase it depending on the competition in your market. Some businesses will need to spend more; others can do fine with a smaller budget. Make sure you’re tracking all of your marketing expenses against the budget. You want to know what percentage of the budget you’re spending on items. It’s easier to determine if a $500 marketing “opportunity” is a good investment if you can weigh what percentage of your budget that item represents. If you have $1,000 budgeted for the year and someone calls with an opportunity that’s $500, you have to decide if it’s worth risking half of your budget for the year on one marketing opportunity. Spoiler alert, it’s not likely a good investment if it’s that much of your budget. 

How can you make sure you’re getting the most out of your budget? 

Track everything you do to market your business. What do you spend? What do you make back from that money? Some marketing efforts will have a huge ROI (return on investment). Some marketing channels will be more lucrative than others. If you’re investing in paid ads and generating a 10X ROI, meaning for every dollar you spend in ads, you get $10 back, that’s a great ROI, and it’s probably worth investing more in paid ads.

Conversely, if you’re investing in trade show booths and spending $5,000 and generating leads but no sales, that’s not a good investment, and you probably don’t want to do that again next year. Track everything, so you know where you spent the money and what you got in return so that next year’s marketing budget is easier to set and manage. You will likely increase your budget over time. Marketing is one area that can be a significant revenue generator rather than an expense, once you figure out where to spend your budget.