Determining how much a small business should spend on marketing depends on several factors including the business’s size, revenue, industry, growth stage, and marketing goals. While there’s no “right” answer to this question, there are some general guidelines that can help you in setting your marketing budget.
5% to 10% of Revenue is Typical
A common approach is to allocate a percentage of your revenue to marketing. For small B2C businesses, this is typically between 5% to 10% of your gross revenue, whereas for B2B companies, BDC recommends 2 to 5%.
However, if you’re in a highly competitive industry or a startup looking to establish a market presence and focused on brand building, you will probably want to spend a much higher percentage than established companies might use—up to 20 percent of gross sales.
One example is if you’re building organic SEO by targeting highly competitive keywords—you will probably need to spend more if those same keywords are used by multiple competitors, especially if they have deep pockets. On the other hand, a small local law firm might get decent results spending $500 per month targeting local keyword searches.
Building a Solid Marketing Foundation
The key to obtaining the best bang-for-the-buck from your marketing activities is building a solid foundation. A professional brand and a modern, performance- and conversion-optimized website are THE key components of an marketing strategy in 2024. Why? Because they make every single marketing activity you do—from social media marketing to paid search ads to magazine advertising—more effective and better performing.
A simplified illustration is to compare two fictional companies, both in the electric skateboard business, with different approaches to their marketing budgets over the course of 3 years.
A man who stops advertising to save money is like a man who stops a clock to save time.
Comparing Two Different Ways of Spending Marketing Dollars
Dwayne’s Skate Shop decided to get a cheap logo design on Fiverr for $300 and pay a freelancer $2,000 to build a Shopify e-commerce website from his own design (total monthly cost, including Dwayne’s time spent updating the site is $300/month). At the end of year 3 Dwayne paid another freelancer for $1,000 to give the site a much-needed facelift. Other costs include $600/month for social media and $1,200/month for paid Google Adwords ads (including ad creation). Total marketing spend over 3 years: $79,000.00.
Bubba’s Boards spent $2,500 on a professionally-designed branding package, and invested $5,000 on a series of videos to promote his brand awareness. Rather than paying upfront for a website build and spending his own time on it, Bubba opted to outsource the website entirely with the Website-as-a-Service at $600/month. Bubba spends the same as Dwayne on social media ads and management ($600/month). Bubba also decided to invest $12,000 in an SEO campaign and $5,000 to optimize the site’s conversion rate. Bubba also spent a bit more initially on paid Adwords ads, but reduced the amount in year 2 when his website was organically ranking very high in search results as a result of the professional design and SEO campaign (average monthly cost of $600). Total marketing spend over 3 years: $96,500.00.
|Website - design & build
|Website - monthly cost
|Website - redesign
To summarize, Bubba’s Boards spent $17,500 more over 3 years primarily in foundational marketing (branding, website, conversion optimization of the website and search engine optimization) in our simplified example case study.
Dwayne’s brand appears amateurish and inconsistent—the market views his business as a small, home-based operation. This carries through to his cheaply-designed website which doesn’t instil faith in potential customers that they can trust the company. As a result, Dwayne competes mainly on price.
Although his paid ads bring lots of traffic to the site, the low quality brand and website combined convert only 1 in every 2,000 visitors to a paying customer. Assuming 5,000 monthly visitors, this 1:2,000 conversion rate would result in 90 customers over 3 years, This computes to an $877.78 customer acquisition cost.
By contrast, Bubba’s combined organic SEO investment and paid ads strategy brings in roughly the same amount of traffic, but his professional brand and conversion-optimized website converts 1 in every 500 visitors into a customer. This results in 360 customers for a customer acquisition cost of $268.06.
If you are marketing from a fairly static annual budget, you’re viewing marketing as an expense. Good marketers realize that it is an investment.
Does Spending More Translate Into Better Results?
The answer is both yes and no. The more you spend, the better the results can be—to a point—although the graph of results vs. spend would be a curve with diminishing results. Not investing enough in marketing can also reduce the effectiveness of every dollar spent.
Competing with larger businesses with bigger marketing budgets can be tough for small businesses. They seem to dominate every marketing platform and it can seem like it’s virtually impossible to compete.
The answer is also “no”. Bigger budgets aren’t always better, especially if you are strategic and do you r homework—properly identifying your target market and crafting messaging that will appeal specifically to them. rather than taking the “spray” approach that many big companies do.
Investing in the right foundational marketing like a professional brand and an effective website is key. Another good strategy is to recognize that marketing rarely provides instant results. There’s usually a lag between investment and result. For this reason you need to be keep an eye on your cashflow, and conserve your capital for ongoing marketing expenses. This is where programs like Website-as-a-Service are a huge benefit. It allows you to get a custom, professionally-designed, and fully optimized website without spending thousands of dollars upfront—so you can free up your capital for other marketing activities like paid PPC advertising, SEO, or social media advertising.