How Much Should Your Small Business Be Spending on Marketing

Michelle Stiens

Michelle Stiens About The Author

December 3, 2020 at 3:00 PM

How Much Should Your Small Business Be Spending on Marketing

Figuring out a marketing budget presents a real challenge for many businesses. You want to be sure that you're meeting your goals without overspending, or worse, failing to make a real impact. On average, less than 25% of companies report how marketing influences revenue, which means that many companies aren't successfully optimizing their marketing budgets. Do you know how much you should be spending on your marketing?

Learn more about measuring your ROI

Consider Your Investment vs. Revenue

ROI is the measure of profit achieved through your marketing investment. Usually, ROI is expressed as a percentage of your spending. It might look like this:

[How much you gained from your campaign] - [The amount you initially spent on your campaign] = Net return

([Net return] / [The amount you initially spent on your campaign]) x 100 = ROI

This calculation will give you a percentage that reflects your ROI, allowing you to see how your marketing investment increased your overall revenue. An ROI calculator can help give you a more accurate picture of the actual gains from your campaign, usually based on your specific marketing goals. Ideally, you want to optimize your ROI. Raising your marketing budget in the right areas can help increase the ultimate return on your investment. If you're spending in the wrong areas, you might not see the same degree of success. Analyzing historical data can give you a better idea of which areas are likely to be successful.

Keep in mind that how you measure your ROI may also depend on your goals for the campaign. For example, a branding campaign that focuses on raising overall awareness of your business may look very different from a campaign designed to raise sales of a specific product. 

Be Realistic

Be smart with your investment by committing to a budget you can sustain comfortably long term. Many businesses start out gung-ho, but find that their marketing budget runs out faster than anticipated--especially if they don't see the ROI they had hoped for. 

New marketers may not have historical data to aid in that crucial decision-making, whereas seasoned marketers often have a solid idea of how much they have to spend and what areas see the best return on their investment. 

Working with a media partner can help you better establish the marketing tactics that will help you meet your goals. Keep in mind that companies new to specific marketing platforms will take a different approach than those that are more seasoned--and working with a media partner can help you find the right balance for your business. 

Pay attention to the return on your marketing investment. If you have a high ROI, you can often justify higher marketing spending, regardless of your initial budget size. Make sure you know how much you can afford to spend relative to cash flow. You may need to consider factors like your operating expenses and production costs as well as your actual marketing spend. 

What's Your Conversion Rate?

How many leads are you successfully converting to customers? Marketing can bring leads to your website or to your sales team. From there, customers need the right tools or incentives to help them reach their overall goals. 

A good conversion rate may depend heavily on your industry. For example, a car dealership or realtor may have a much lower conversion rate than a restaurant. Your marketing can also have a substantial impact on your conversion rates. Marketing with conversion rates in mind can help you achieve your goals and provide consumers with the information they need to make the shift from lead to satisfied customer. 

Check In and Be Flexible

Sometimes, you may need to adjust your allocated budget during a campaign in order to meet revenue goals. A customized marketing campaign, including one that responds to the needs of your customers, can raise your odds of a successful return on your investment. Success in marketing requires reevaluating your plan and being flexible. Sometimes, you may think that you have the ideal marketing campaign idea, only to discover that it isn't reaching your target audience. 

For example, you may have started out with a social media ad campaign that relied on Facebook, only to discover that your Gen Z target audience just isn't responding--which means you may need to focus on Instagram or shift more funds to OTT marketing in order to reach your goals. Working with a media partner can help you track KPIs, optimize your budget, and drive revenue. 

Your small business's marketing budget will depend on your ROI, your goals, and the funds you have available. Once you've set your overall marketing budget, a media partner can help you decide on the best way to optimize your ad spend. A flexible approach and the input of a media partner can help you achieve your goals and see success through your advertising efforts.

The Ultimate Guide to Measuring ROI_CTA