Marketing Budget For Small Business: What You Should Know
There you are, at your desk, hovering your mouse over Quickbooks again and trying to understand how to best allocate your marketing dollars to make an impact. With a sigh, you close your laptop in a rush. Sound familiar? We’ve all been there before as small business owners. Today, we welcome a bit of sanity into your life and clarity into your business. In the post below, we’ll go over what a marketing budget is, and how you can create the right budget for your small business.
What is a marketing budget?
First things first, let’s cover what a marketing budget is. Essentially, it’s a way to document the funds that will go towards your marketing activities either annually or quarterly. To get the most out of your budget, you’ll want to assess every item that will be within your marketing tool kit. This means looking at any recurring expenses, such as; salaries for marketing department employees, the cost of content marketing (social media, search engine optimization), and any marketing communication-based items.
From here, you’ll derive a number that you’ll set aside from total revenue for marketing strategy. (Don’t worry, we’ll show you exactly how to do this a little later on in the post.)
Keep in mind your customer
Now that you’re familiar with exactly what a marketing budget is and have a briefing on what is included in it, let’s review the first step: knowing your target audience’s journey to purchase.
Any marketing budget should have the buyer’s journey in mind. The reason is simple: Knowing who you’re talking to and how to best target them will create a clear sales funnel for your small business marketing goals.
Here are the sales funnel steps to know:
Awareness: In this step, your aim is to get on your audience’s radar.
Interest: Here, you’ve gotten on your target audience’s radar, but now your goal is to create interest to further them down your funnel.
Consideration: Once you’ve successfully garnered interest, you’ll move into the consideration stage.
Purchase: At last, you arrive at them buying from you–woo!
Now you can clearly scope out different goals for your small business marketing budget at each stage of the funnel and what budget you’ll need to support each of them.
Here’s what kind of marketing tools can be found at each stage:
- Advertisements on Google or Facebook
- Web content
- Social media
- Customer reviews
- Case studies
- White papers
- Free trials
- Free consultations
- Upsell incentives
These are the different types of content marketing you’ll want to include into your budget to meet customers where they are in your funnel, whether they’re just learning about you or one step to buying from you.
Items to include in your budget
Now that the sales funnel is sorted, let’s move on to the items you’ll want to include in your budget.
As a general rule of thumb, small businesses with revenue less than $5 million should allocate 7-8 percent of their revenues to marketing. However, if you’re in growth mode, you may want to consider adding more marketing dollars to the budget to really hit the ground running.
With the total budget you settle on, there are many items you’ll want to consider spending it on. Let’s review each of them below.
Paid Advertising: Pay-per-click ads. These are Google ads that can be found when people search for services or products close to yours.
Social Media Marketing: Connecting with potential buyers organically. Social media is a great tool to get in front of new leads without any money (unless you’re advertising, more on that next.)
Social Media Advertising: Promoting your brand across social media channels. A great way to spread your message at a smaller budget.
Content Marketing: This could look like podcasts, webinars, or e-books for downloading. Consult where you are in your business and what you have time (and money) to invest in.
Including a good mix of all these areas is key to driving a ROI on your budget.
How to Calculate Your Marketing Budget
Now for the part you’ve been waiting for; calculating your budget!
To make sure that you are maximizing your annual marketing budget, there are a few formulas you’ll want to use to make sure what you think your marketing budget should be is aligned with what it actually is.
Formula 1: Know your cost per lead.
The first calculation you’ll want to do is know how much each lead is going to cost you to get.
To do this, divide the total amount you spend on marketing divided by the number of leads generated.
For instance, if you spend $1000 and generate 10 new leads. Each lead costs $100.
Formula 2: Know your average conversion rate.
The next calculation that feeds off the first is your conversion rate. This is essentially the percentage of new leads that convert (i.e; buy your product.)
To do this, calculate the total number of leads you generated and then divide by the number of those leads that converted.
For instance, if you had 10 new leads and 2 converted, your conversion rate is 5%.
Formula 3: Find the marketing budget
Finally, knowing your cost per lead and your average conversion rate, you can arrive at a marketing budget total.
Take the conversion rate you calculated and divide it by the number of customers you want to convert. This will give you how many leads you need to get there.
That could look like this:
100 new customers / 0.05 = 2000
After getting the projected number of leads needed to convert 100 new customers, you now can get the total marketing budget your small business needs.
To do this, take the projected number of leads and multiply them by the cost per lead calculated earlier.
That could look like this:
2000 leads x $100 = $200,000
Voila, there you have it, your total budget!
Know your sales funnel and the areas that you’re spending money in.
The most important thing to remember is that before you do anything else, get your sales funnel right. Know what marketing items you need to create to ensure the buyer’s journey is fool-proof and conversion-worthy.
Track your expenses and revenue to develop the overall marketing budget.
To make the most of your budget, know what your expenses are and what your revenue is. From here, you can calculate your marketing budget to align with your marketing goals.
Revisit and revise.
Your marketing budget is a living, breathing document and should be constantly revisited with changes made as revenue fluctuates.
There you have it, all that you need to go on and conquer your small business marketing budget. In case you need a hand when it comes to your social media marketing, feel free to shoot us a line and see how we can help!
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