How Much Do Small Businesses Spend On Marketing?

You want to grow your business. You know you need to do more marketing to expand your reach and attract more customers. You also know that good marketing isn't cheap. It's scary because you're thinking of increasing expenses, but you don't have a clear vision of what you'll get in return.

Typical Marketing Budget Guidelines

Determining what percent of your current total revenue you should spend on marketing isn't easy. It depends on your available resources and what you're trying to achieve. However, if you're only spending 1 or 2 percent of your revenue, your organization will likely progress slower than if you invest 5 or 15 percent. There's no surefire answer to how much you should spend on marketing, but here are some guidelines to consider according to the Small Business Association:

• 2-3% of projected gross revenues for run-rate marketing
• 3-5% of projected gross revenues for start-up marketing
• Businesses with revenues of less than $5M should allocate 7-8%
• (Percentages assume 10-12% profit margin)

The Plan Drives the Budget

Having a clear vision of your goals and objectives will help you choose the investment that's right for your organization. Here is one question I always ask my clients to help me uncover what their bottom line is:

“What results do you need to achieve to feel like your investment in marketing was the best thing you could have ever done?”

Your level of risk tolerance plays a significant role in creating a marketing budget as well: you have to spend money before you see results. While there are no guarantees, a good marketing scientist can gather and analyze data to create hypotheses and projections with a high level of accuracy.

No matter what marketing strategies you decide on, the most important thing you can do is strive to measure what impact they have on your business growth. It can take time, but if you keep at it, your investment will generate results that drive your business forward.

Common Marketing Budget Challenges

There are 3 challenges business leaders need to overcome when deciding on a marketing budget:

1. Inability to Measure Results: Traditionally, it's been difficult to tie specific marketing activities to sales. Most organizations have some type of marketing strategy (website, radio, cold call, SEO, etc.), but they often don't have deep insight into which campaigns are driving results and which aren't. They could be investing money in activities that aren't doing anything for them.

2. Difficulty Keeping Up with the Trends: Marketing is becoming increasingly complex as technology, data mining, and buyer behavior continues to evolve. There are many more marketing channels and specialties than ever before. It can be hard for business leaders to determine which strategies will work best, and slow-moving organizations may miss the boat altogether.

3. Skeptical of the Outcomes: I haven't talked to an organization yet that hasn't felt burned on marketing at some time or another. Projects seem to drag on forever, and results seem non-existent. There's a lot of skepticism about the effectiveness of new and progressive marketing strategies. Many business leaders don't feel confident about the value marketing, which could hold them back from trying new approaches.

First Step to Making the Right Marketing Investment

To avoid investing money in marketing activities that may not be delivering the desired results, it's crucial to perform a marketing audit before creating your upcoming agenda. It will help you quickly uncover problems and opportunities, identify gaps in the marketplace, and pinpoint marketing activities that drive the highest ROI. Taking a step back to look at what's working and not working before rushing ahead will increase efficiency, reduce risk, and improve results.

Many business and marketing leaders struggle to find time for the in-depth analysis required to create sales and marketing plans that deliver. An independent third-party marketing audit can do the heavy lifting of gathering data, generating reports, analyzing information, and deriving key insights, so you quickly and confidently make well-informed strategic decisions about how to grow your business.