How to Calculate what to spend on marketing, according to the U.S. Small Business Administration
Many businesses allocate a percentage of actual or projected gross revenues – usually between 2-3 percent for run-rate marketing and up to 3-5 percent for start-up marketing. But the allocation depends on several factors: the industry you’re in, the size of your business, and its growth stage. For example, during the early brand-building years, retail businesses spend much more than other businesses on marketing – up to 20 percent of sales.
Generally, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand, such as your website, blogs, sales collateral, etc.) and 2) the costs of promoting your business (campaigns, advertising, events, etc.).
This percentage also assumes you have margins in the range of 10-12 percent (after you’ve covered your other expenses, including marketing).
If your margins are lower than this, you might consider eating more of the business costs by lowering your overall margins and allocating additional spending to marketing. It’s a tough call, but your marketing budget should never be based on what’s left over once all your other business expenses are covered.
HOW MUCH OF YOUR MARKETING BUDGET SHOULD YOU DEDICATE TO DIGITAL MARKETING?
You should invest at least half of your small business’s marketing budget in digital marketing. Traditional or older marketing methods like billboards are often overpriced, and hard to determine the “Return on Investment.”
These older methods are still effective. So wise business owners and marketing managers should look to cover the basics of traditional marketing. And then focus on search engine optimization (SEO), Pay Per Click (PPC), Website Design, and Social Media to garner attention in a world where people are looking at their smartphones ten times longer than they are on the road.