As a small business owner, you’re used to setting a budget for operational expenses like supplies, utilities and rent. They are relatively easy to predict and occur at regular intervals. But the same isn’t always true of marketing costs. Factors like a new product offering, seasonal timing or the type of promotion can influence how much you spend. Here are three approaches to setting your marketing budget. Consider which is right for you.
- Take a Percentage – One approach is to base it on a percentage of last year’s sales or revenue. The SBA reports that small businesses with revenues under $5 million should allocate 7-8 percent of their revenues to marketing.* The actual percent may vary based on your industry or stage of business. For example, a start-up business would need to spend more to establish itself in the marketplace.
- Do What the Other Guys Do – Think of this as keeping up with the neighbors. Your marketing budget should match what your competitors spend. The idea is that you’re drawing on the expertise of others. It assumes that your marketing efforts will yield the same results as the other business. This approach requires careful monitoring of the competition to understand their motives. You may need to adjust based on your own business goals.
- Start at the Goal Line – This method takes a more scientific approach. First, determine what your promotional goals are. For example, it might be to increase the amount of repeat business by 15 percent. Then determine what type and how much promotion will be needed to reach that goal. It requires an analysis of marketing techniques and what results you might achieve. More established businesses will have a history of past marketing campaign results that would be helpful in identifying specific dollar amounts.
The right method for setting your marketing budget depends on a number of factors like age of business or type of industry. These three approaches offer a range of options to choose from. Unlike your utility bill, marketing expenses have the ability to generate additional revenue, so it is important to carefully consider which approach will produce the best results for your business.
* Source: Beesley, Caron. “How to Set a Marketing Plan Budget that Fits Your Business Goals,” U.S. Small Business Administration, SBA.gov, January 2013.