As a general rule, your average marketing budget should be 10% of your sales revenue. This goes for both B2B companies and B2C companies.
So if you made $200,000, then you would set aside $20K for marketing to invest back into your business.
However, you can (and should) get more specific than this because it could make a huge impact.
Especially if you’re a brand new business with little to no sales yet. How much should your average marketing spend be in order to move a customer down your sales funnel? How much do companies spend on a budget with products and services similar to yours?
This is where inbound marketing takes place. You will need to help potential customers find your business. This will cost you money so make sure that you’re investing into a budget for this.
Marketing needs growth made and to make money, but money is needed for a marketing investment.
You need money to make money. It can be a vicious cycle for small business owners starting out. However, you can start small.
So how much do you allocate towards marketing and your website development? Especially when you’re working with minimal resources?
Today we’ll show you exactly how to allocate funds based on your business objectives, business goals, revenue, and more.
Let’s get started!
How To Create Your Small Business Marketing Budget Step By Step
Step 1: Set immediate and long-term goals
As a sales team and marketing team, before you can allocate a small business marketing budget to anything, you first need to understand your target market and what you’re trying to accomplish.
A lot of business owners and marketing leaders here would say, “INCREASED SALES!” But you need to be more specific before you are able to drive growth.
How much in sales and how are you going to get there? Via social media ads/digital ads? Video marketing/video production? Email marketing? SEO (search engine optimization)? Google ads? Magazine ads? PPC advertising? Online advertising? Traditional advertising? Paid advertising?
Which marketing channels are you using? Digital channels, etc? You will need to do some market research.
You need to have an overall marketing strategy so that you don’t waste a single dollar.
The best way to do that is to set immediate and long-term marketing goals.
If you need help determining what kind of goals to set, you can check out these small business marketing ideas.
Step 2: Jot down exactly what needs to be done to achieve those goals
From there, you need to work together to lay out the steps you need to take to reach those set goals.
Maybe you want to earn x amount from Instagram in your digital marketing budget.
Before you can do that, you need to set up your Instagram account and begin with your content marketing. You will start with your content creation and post 5 Instagram Reels a week in order to reach your target audience. This will determine how much budget you need to allocate towards your content marketing.
Or, maybe you are wanting to retarget with Google ads.
You can’t retarget organic traffic you don’t have yet. So, if that’s the case, you need to run search marketing campaigns before you run display campaigns.
A pro tip is to look at a map of steps that will get you from point A to point B, and that’s what you’re making in this step.
You’re laying out exactly what steps you’ll need to take to meet your goals.
Step 3: Look at any existing data you have and/or industry data around costs to meet goals
From there, you’ll want to allocate a dollar amount to each step to help ensure your small business marketing budget accordingly.
How much will it cost you in labor, ad spend, or both to get from your immediate goals to your long-term goals?
You can pull these numbers from any existing data you have, or you can look at industry data.
If you’re researching outside data, try to look at recent information and again, look at data and stay within your industry.
In doing this step, you’re essentially calculating your CAC. CAC stands for customer acquisition cost.
You’re determining how much it’s going to cost for lead generation.
Step 4: Pinpoint the LTV of your average customer
After that, you’ll want to determine the LTV of your customer. LTV stands for lifetime value.
You’re putting a number on how much a customer is worth to you on average.
How much do they spend on your new product or service on average?
Write that number down.
Step 5: Use this marketing formula to calculate your small business marketing budget
So at this point, you know how much your marketing plan costs, and therefore how much it costs to acquire a customer.
You also know how much your average customer is worth.
Your marketing budget = your customer acquisition cost x the amount of customers you want
If it costs you $100 to acquire a customer, and you want 10 new customers, your total budget needs to be $1000.
And if your LTV is $300, you can assume that those 10 new customers will bring you $3000 in return.
If it costs you $50 to acquire a customer, and you want 10 new customers, your total budget only needs to be $500.
So you can see how it will benefit you to cut down on customer acquisition costs wherever possible to maximize your profits.
This leads us to the last step in your budgeting process in calculating your small business marketing budget.
Step 6: Launch campaign, track and adjust as needed
After you’ve launched your marketing efforts, you’ll want to keep a close eye on it. Don’t just set it and forget it.
One of the best practices involves watching closely to determine which marketing efforts are working and which aren’t.
Which ones should you pause and which ones should you invest more marketing dollars into? This will help you keep a steady cash flow.
A/B split testing will allow you to quickly see where you’re getting the majority of your ROI from.
That way you can stop throwing money at the efforts that aren’t driving any or enough ROI.
The lower your CAC is, and/or the higher your LTV is, the higher your profits will be.
You should be aiming to achieve the best results at the lowest marketing cost per result.
Speaking of A/B testing, check out this post next to learn how to do Facebook ad testing.
And those are the 6 steps to creating your small business marketing budget!
Having a calculated marketing budget will bring you one step closer to marketing automation success.
Free Marketing Budget Calculator Quiz
Now, if all this sounds like it’s going to take too much time or if you don’t know how or where to gather the data, don’t worry!
You can take our free marketing budget calculator quiz! Determine your marketing budget in seconds.