No, that’s not a specific answer to the question posed by the title of this article.
That’s the exact amount I, your humble author, spent on new marketing efforts in July. Things I haven’t tried before. I’m the first to admit it doesn’t sound like a lot. It’s not the marketing budget for Coca-Cola or Apple. And I would still have to raise money to buy even a millisecond of Super Bowl ad time.
But it’s still my money, which is why I tracked it down to the last cent.
As an entrepreneur yourself, you understand where I’m coming from. The words “marketing budget” don’t represent an abstract concept you dream up in a conference room, wherein you think up new ways to spend stockholder money.
“Marketing budget” isn't an abstract concept at all. It’s your money. Even scarier: you’re spending it on the hope of future results. You want to avoid spending so little that revenue dries up — but not so much that you completely empty your coffers.
So how do you find the sweet spot for your marketing budget — without feeling like you’re gambling a portion of your revenues away?
Good Spending Habits Make for Good Results
Personally, I’m happy with the $387 I spent, because I did the following things:
Wrote down a specific budget for the month and stuck to it
Tracked where the money went
If you stick to these basic habits each month, you’ll likely end up “self-correcting” into an appropriate marketing budget over time. But there are two other things I did worth noting. I put on two hats:
The Investor’s Hat. Approaching my marketing budget like an investor, I “diversified my portfolio.” I didn’t put 100% on black at the roulette table.
The Scientist’s Hat. I put aside some of my marketing budget to try new things. Even if they yielded no results, I at least looked forward to buying up new knowledge.
Recommendations from the Small Business Administration
Of course, you’re not me. You might have a much larger budget with lots of widgets to sell. Allow the SBA to weigh in with its time-tested wisdom. Here’s what they have to say:
A rule of thumb: small businesses earning less than $5 million in annual revenue should spend about 7-8% of that revenue on marketing. According to the SBA, that money should include both brand development (website, blogs, social media, etc.) and direct promotion (advertising, sponsorships, etc.)
Startups might want to spend less, perhaps 2-5% of revenue.
Your budget will depend on many factors: the industry you’re in, the size of your revenue, and your current level of growth. If you can’t handle 150% growth over the next year, why spend like you can?
If these sound like hard-and-fast rules, keep in mind they’re simply a reference to get you started. Your industry might require a larger percentage of revenues toward marketing — or you may be so busy with revenue generation that you have little time to devote to marketing at all.
Ask Yourself the Right Questions
Writing for Forbes, marketing CEO Joe Apfelbaum recommends asking yourself the following:
What are your needs? Sales, leads, brand awareness?
How much are you currently paying?
How much growth can you handle?
What’s your risk tolerance?
If you have extra money laying around, it’s tempting to spend it on marketing as a way of reinvesting in yourself. And while reinvestment is laudable, simply pumping more money into marketing might not be the right way to go about it — particularly if you don’t have the infrastructure in place to handle new growth.
A Helpful Tool for Determining a Marketing Budget
With the usual caveat that every situation is different, Web Strategies put together a marketing budget calculator that’s worth exploring.
Like the rules of thumb from the SBA, try to use this as a reference point rather than a hard and fast rule. A marketing budget is a bit like a recipe — you might have to try someone else’s to get started, but over time, you should tweak and change it to adapt to your individual circumstances.
Tips for a Smart Marketing Budget
You have the tools here to generate a preliminary marketing budget. But how do you know where to put each dollar? Should you put 10% into social media ads, or 50%, or none at all?
I can’t tell you exactly what your business needs. But I can tell how you to figure this out for your small business:
Track everything. Knowledge is the foundation here. If your target demographic doesn’t listen to radio ads, for example, you’ll want to know that.
Review your ROI each month. Put the systems in place to learn where your new leads and customers are coming from. Some services, like Google Adwords, will provide this information for you. Compare the business generated to the amount you spent, and reallocate your money accordingly.
Don’t overspend your capacity for growth. If your marketing is effective but you don’t have the employees to handle any more growth, the best sort of reinvestment is in building up your business’ infrastructure. Don’t blindly increase your marketing budget. It’s a smart way to reinvest in your company, but only if you can handle the new business.
Remember that $387 I told you about at the beginning of this article? It’s not going to be my budget for August. As I learn what works and what doesn’t, I’ll fine-tune my spending. I’ll keep trying new things. I’ll cut down on what doesn’t work.
Do the same. You’ll eventually arrive at a marketing budget that feels less like gambling and more like sound strategy.