The desire to be ‘my own boss’ has caused several corporate professionals to quit their secure high-paying jobs to start their own business. The incalculable options that the current digital age provides have made it easier for anybody with a relevant business idea to set up shop. You will witness numerous small businesses that have made their mark irrespective of the industry they are operating in. Like all businesses, small businesses also need to promote themselves aggressively to attract customers and expand their business. Although these businesses are keen on achieving the expansion and profitability goals, they refrain from budgeting. Budgets, and more so, marketing budgets are not given the eminence that they deserve.
Why is the marketing budget necessary for small businesses?
In perilous times, you are most likely to cut your marketing budget before any other. However, doing this will shunt your capability to grow and thereby render your expansion plans to be an utter failure. Hence, it is important to create a smart and affordable marketing budget plan that can stand the test of time and fuel your pre-set promotional goals.
The marketing budget compels you to find answers to questions that otherwise would be superficially dealt with. At the end of the exercise that precedes a smart marketing budget, you will
- Decide on the marketing methods that will fetch you an attractive ROI.
- Know how much to allocate resources (time and money) to the right marketing channels that are sure to maximize your profitability and streamline your productivity.
- Know the measure of calculated risk you will be undertaking to fuel your growth plan.
- Explore new marketing ideas on the existing platforms deciding to allocate a part of the budget on the same (eg.: Pay to Play strategies and advanced use of social media for advertisements and promotions).
How to create a marketing budget for a small business?
Wondering how can a small business determine its marketing budget? Here is the answer to that. A marketing budget, like any other budget, needs to be worked out by considering various factors. 5 steps are popularly used to work out a small business’ marketing budget. They are
Know your customers:
To create a smart marketing budget, you need to know your target audience and all demographic details that concern them. This will help you modify and position your brand as a potential solution to their pain points. Knowing the customer will inform you as to which digital platforms they are accustomed to. This can be leveraged to push promotional content and ads that will make brand positioning easier.
Spending vs revenue:
It is critical to base your budget on the revenue you earn. Several businesses choose to go by the thumb rule that suggests at least a 10% spend of earned revenues to be allocated on marketing. This is further segregated between marketing channels and business promotion to gain an overall marketing budget.
Spending decisions:
The marketing budget is not the one to be cut when your business is faced with tough times. Experts encourage businesses to increase the amount spent on marketing while cutting costs in other functions. However, it is important to be discreet in incurring costs that will help achieve the pre-set marketing goals within the previously set timelines. Digital platforms are a great option for small businesses to run their marketing campaigns. These platforms are preferred as they are flexible enough to allow you to make adjustments to the campaign as you go. Hence, the fixed and recurring spend components that digital platforms entail, also need to be worked out.
Realignment of goals:
As the industry you are operating in is subjected to constant change, it is apt not to have a fixed marketing budget. This will allow you to redirect funds to make the most of the opportunities that unexpectantly arise. Small businesses can also explore other marketing options that may earn a better ROI than what was previously planned.
Best practices:
The leaders in the industry you are operating would have already set precedence by creating and utilizing smart and affordable budgets. It is better to learn from the success stories that involve their marketing budget plan by noting takeaways that may be useful for your business. The best practices usually involve digital platforms, technologies, and the methods used such as email marketing and social media marketing, among others. It is important to know and incorporate these trends into your small marketing budget to keep pace with the players in the industry.
The information thus ascertained by looking into the above-listed factors will help in the formulation of the marketing plan. This plan is the basis on which the marketing budget is constructed.
How much should a small business spend on marketing?
The amount spent on marketing differs from business to business based on the revenue they earn annually. And it is vital to have a proper marketing budget plan. There are numerous marketing budget calculators available online that help you calculate the amount range to be set aside for marketing with just one click.
You can also calculate and arrive at the amount range manually. Here is a marketing budget example,
Assumptions: Expected gross sales: $1,000,000
Annual rent: $25,000
The cost price of the product: $20
The sales price of the product: $50
Profit margin: $30
Profit/mark-up percentage: 60% i.e. [(30/50)*100]
Step 1: Calculate 10% and 12% (thumb rule) of the expected gross sales-
10% on sales = $100,000
12% on sales = $120,000
Step 2: Multiply the average mark-up percentage per product with $100,000 and $120,000
and you will get $60,000 and $72,000 respectively.
Step 3: Subtract annual rent ($25,000) to get your marketing budget range of $35,000 and $47,000. You can set your marketing budget to be within this range.
This is one of the popularly used basic manual budget calculating techniques you can use to ascertain the amount you should set aside exclusively for marketing.