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Creating an Effective Marketing Budget for Your Small Business

Developing a strategic marketing budget is crucial for any small business looking to grow. However, determining how much to spend on marketing and where to allocate those funds can be challenging. This comprehensive guide will walk you through the complete process of building a data-driven marketing budget that delivers real results.

How Much Should You Budget for Marketing?

There is no universal right amount for marketing spend – your budget should be based on your specific business goals, industry benchmarks, and current marketing efforts. Here are some tips for calculating your total budget:

  • Refer to industry research for benchmarks. Software companies allocate 19% of revenue to marketing on average according to Gartner, while SaaS companies invest 22% on average according to Blissfully SaaS Benchmarks.
  • Tie budget to business goals. If aiming for 20% sales growth, ensure your marketing budget allows for appropriate activities to drive that objective.
  • Assess current marketing tactics and costs. Build on what is already working by allocating additional budget to successful initiatives.
  • Start modestly. For young companies, allocating 7-12% of revenue to marketing is recommended by Forrester. You can increase spending over time as efforts prove ROI.
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Image Source: Gartner

Optimizing Your Budget Across Marketing Activities

With your total budget figure in mind, the next step is determining how to distribute spend across different marketing tactics. Consider the following categories and average cost estimates:

  • Content Marketing – Blogs, Videos, etc. (15% of budget)
  • Social Media Marketing – Organic and Paid (10%)
  • Email Marketing and Newsletters (15%)
  • Search Engine Optimization (20%)
  • Pay-Per-Click Advertising (15%)
  • Website Enhancements (10%)
  • Print Marketing – Business cards, brochures (5%)
  • Events and Networking (10%)

Ensure your budget allocation aligns with your overall marketing strategy. For example, prioritize content marketing, SEO, and social media if focusing on organic growth and brand-building. If looking to drive direct lead generation, allocate more to PPC and email marketing.

Marketing Budget: Measuring and Optimizing Spend

The marketing budgeting process does not stop once funds are allocated. To make the most of your budget:

  • Track key performance indicators related to each activity like website traffic, leads generated, sales influenced, or brand awareness reached. Monitor metrics like CPL and ROAS.
  • Leverage analytics and customer data to calculate channel profitability and make data-driven budget decisions.
  • Determine your key marketing metrics like cost per lead, conversion rate, and ROI. Assess success based on those KPIs.
  • Optimize budget allocations monthly and quarterly based on performance data. Increased funding for tactics that are delivering strong results.
  • Keep 20% of your budget flexible to pursue new opportunities that arise mid-year.

Marketing Staffing as Part of the Budget

When determining your marketing budget, do not forget to factor in internal staffing costs like:

  • Salaries of marketing team members
  • Cost of any outsourced marketing assistance
  • Business management software or tools

For context, IDC reports that staffing accounts for 25% of the average marketing budget.

Adjusting Your Budget Based on Business Stage and Goals

As a final note, recognize that your ideal budget and marketing objectives may evolve over time. For early stage startups, the focus may be brand building. For established businesses, lead conversion may be more important. Continually assess your business goals and adjust budget allocations accordingly.

Following this data-driven approach will help you maximize the return on your precious marketing dollars. What tips and strategies have you found useful for optimizing your marketing budget? I’d love to hear from other small business owners/marketers on what’s worked for you!

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