One of the most vital decisions that a Small and Medium-size Business (SMB) has to make is how much money to allocate for the marketing budget. Prospects often ask, “How much should I spend on marketing?“
The answer: “It varies by industry and business size.” It’s also based on how much you want to grow, and how fast. Both the Counselors to America’s Small Business (SCORE) and the U.S. Small Business Administration (SBA) define the variable for a proper marketing budget to be between 2% and 10% of sales.
Most companies under spend on their marketing budgets, thinking that to not spend is to save. This quite simply isn’t true. You’ve heard it before, and it deserves repeating: You have to spend money to make money. The trick is to spend your money wisely on a customized marketing plan aimed at fulfilling your company’s goals. Keep in mind that your marketing efforts have a direct result on your return on investment (ROI).
Budget-setting guidelines
Two primary things should be considered when setting a marketing budget:
- The development of the brand and the channels used to promote the brand. These include logos, Web sites, blogs, sales presentations, brochures, ads, etc.
- The ongoing expense of promoting and advertising your brand to your customer base and your prospects through our Search Engine Optimization & Social Media Marketing plans.
For most SMBs, the percentarge of revenue dedicated to a marketing budget is determined by industry and size. But, in general terms, here is some information we have put together based on several creditable sources.
| Revenue | Marketing Budget |
|---|---|
| Less than $5 million | 7–8% |
| $5–10 million | 6–7% |
| $10–100 million | 5–6% |
| $100–300 million | 3–5% |
| More than $300 million | 3-4% |
Important Considerations
Every industry is different, so companies that sell to specific government branches or one that has an ultra-specialized niche may be able to deduct 1–2% from the above figures. If your company is B2B or B2C, you may need to raise your budget by 1–3% to see solid results. Retail and pharmaceuticals lead the spending, with many of these companies spending more than 20% of net sales. The overall average is reported to be 4–6%. Many other circumstances will merit an increase or reduction in your marketing budget as a percentage of revenue. Feel free to contact us to discuss this, or visit http://www.sba.gov/smallbusinessplanner/index.html.
Can I Still Grow My Company In Phases?
Yes. We call this organic growth and it’s how most every business starts off. Remember washing cars or mowing lawns for a few bucks? Next thing you know, your neighbor wants it done. That neighbor refers you to another neighbor and so on. Many businesses grow their clientele by word of mouth alone and are very successful. But they usually hit a brick wall. That’s where building a solid branding campaign helps. When you rely on partial branding or organic growth alone, you risk losing revenue from business you did not get because X% never discovered you or did not have their interest piqued when they interacted with your brand. And you cannot tally the lost revenue from those who perceived your current brand negatively and left your Web site without you ever knowing it. This is why it is so important to build the brand correctly. Why risk millions to save thousands?
Why Do So Many SMBs Fail?
The main reason is that companies do not allocate enough money for marketing. Successful and highly profitable SMBs know how to allocate adequate funding to marketing each year. SMBs realize that marketing, if done properly, brings back solid returns and vice versa — whereas not allocating enough in your budget for marketing could spell disaster. Think of marketing this way: It is a fundamental ingredient for profitability and growth.
Scott T. Carvin is the founder and CEO of US Web Central Corp. an actve award-winning web design and internet marketing company. For more advice on the effective use of your marketing dollars, please feel free to request a proposal or meeting here or call 800-983-1961 x1007.
