How to Effectively Allocate Your Marketing Budget for a New Small Business

As a marketing expert, I have seen many small businesses struggle with determining how much to spend on marketing. It's a crucial decision that can greatly impact the success of a new business. While there is no one-size-fits-all answer, there are some general guidelines that can help you effectively allocate your marketing budget.

The Recommended Percentage

Marketing experts and agencies often recommend that small businesses spend between 7 and 8 percent of their gross revenue on marketing. This means that for every $100 in revenue, $7 to $8 should be allocated towards marketing efforts.

However, according to a study, small businesses tend to follow this rule more loosely, spending between 3 and 5 percent of their revenue on marketing. In simplest terms, your marketing budget should be a percentage of your revenue. A common rule of thumb is that B2B companies should spend between 2 and 5% of their revenue on marketing. This allows for a balance between investing in marketing efforts and maintaining profitability.

The Average Marketing Budget for Small Businesses

The average marketing budget of a small business varies depending on the industry, company size, and marketing objectives. However, a good rule of thumb is to spend between 7% and 10% of your gross revenue on marketing.

According to Salesforce, B2C companies should invest 15% of their revenues in campaigns. Hubspot reports that the average spend of a company was 8.7% of total revenue last year. This shows that while B2C companies typically have a higher percentage allocated towards marketing, it is still important for B2B companies to invest in marketing efforts to remain competitive.

Factors to Consider

When determining your marketing budget, there are several factors to consider. These include your industry, company size, and marketing objectives. For example, if you are a B2C company, the proportion of your budget allocated towards marketing is usually higher, between 5 and 10%.

This is because B2C companies often need to invest in more marketing channels to reach various customer segments. Additionally, the type of business you have can also impact your marketing budget. Small Business Trends reports that the average company spends 1.08% of its revenue on advertising, with variations from one sector to another. For example, retailers spend more (about 4%), while restaurants spend 1.93%. This is because different industries may require different marketing strategies and channels.

The Importance of Digital Marketing

In today's digital age, having a strong online presence is crucial for any business.

There are many ways to advertise online, from buying ads to investing in social media marketing (SMM) and search engine marketing (SEM). As a marketing expert, I recommend investing between 20 and 25% of the total budget of young companies in marketing. This will allow for a good amount to start with marketing strategies and establish a strong online presence. Small and medium-sized businesses (SMEs) have an advantage over larger companies because of their personalized approach to the market. For example, email marketing applications, social media applications, and online advertising offer analysis tools that you can use to see which of your marketing messages are performing the best.

This allows for targeted and effective marketing efforts.

Marketing as an Investment

A good marketing budget can help you compete with well-known companies for a share of the market. If you take advantage of all the tools at your disposal, monitor your results and learn to see marketing as an investment, not as an expense, you'll get better results with your marketing budget. Here's a breakdown of the marketing budget showing the expenses you should expect when planning your marketing budget:
  • Advertising - 30%
  • Personnel - 25%
  • Marketing Materials - 20%
  • Research and Development - 10%
  • Other Expenses - 15%
Keep in mind that marketing can easily cause your sales to drop like a chicken and egg, so you should reduce your marketing budget and decrease your sales even more. This is why it's important to carefully track and analyze the results of your marketing efforts.

The Impact of Digital Marketing on Budgets

With the expansion of channels, marketing costs have grown as digital marketing opens many doors that require data-based approaches and emerging tools based on artificial intelligence. This means that businesses must be willing to adapt and invest in digital marketing efforts to remain competitive. In conclusion, determining how much to spend on marketing for a new small business can be a daunting task.

However, by following these guidelines and considering various factors, you can effectively allocate your marketing budget and see positive results for your business.

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