How much money should you allocate for marketing?
In an ideal world, how much money should you expect to spend on marketing? It depends on your niche. According to the CMO Survey's Special COVID-19 Edition,1 a company's annual spending on marketing varies based on target market (consumer or business) and main offering (product or service). For example:
- Business-to-business (B2B) product-focused companies spent an average of 8.3% of revenue.
- B2B service-focused companies spent an average of 12% of revenue.
- Business-to-consumer (B2C) product-focused companies spent an average of 13.9% of revenue.
- B2C service-focused companies spent an average of 15% of revenue.
That means a company with expected revenue of $200,000 could spend anywhere between $16,600 and $30,000 on marketing.
If these numbers seem high to you, you're spot on.
The CMO Survey found that marketing budgets have risen to the highest percentage of a company's budgets and revenues in the history of their survey. They wrote: "The fact that marketing budgets did not drop at the same rate as budgets and revenues likely reflects priorities given to marketing to retain customers and maintain brand awareness during the pandemic."
However, if you're a young company, you may not be in a position to devote such a large percentage of your revenue to marketing.
How to allocate your marketing budget effectively
There are a range of digital marketing strategies you can use to promote your small business. These include content marketing, email marketing, social media marketing, pay-per-click (PPC) advertising, and search engine optimization (SEO). They're all useful, and they don't have to break the bank.
Email marketing is one of the best ways to nurture visitors to your website until they become customers. While your customer base is small, start with a free email marketing tool.2 Pay attention at the beginning to what each vendor charges to upgrade your service as your mailing list grows. You don't want to get set up and comfortable with one tool only to have to change later due to cost.
With email marketing, the biggest cost to you in the beginning is your time that is, the time you'll need to spend creating compelling content to attract customers, plus the time you'll need to spend customizing a free email tool to match your branding.
Content marketing is another area you can bootstrap for expanding your marketing reach. A good place to start is with a business blog. A lot of blogging software is free, so it won't cost you anything to get started. If you're using WordPress for your site,3 adding a blog is pretty straightforward. You can also set up a blog for free4 using a site like Wix.
The free versions of these blogs have limitations, like the amount of traffic they can handle, the features you can access, how much the blog can be customized, and whether or not the free host's branding is included. Still, it's a good way to get started, and you can always upgrade to paid account later. And as your budget expands, you also can take the work off your plate by hiring a talented freelancer to create content when you need it.
Social media is another marketing tool you can do in-house at the start. But don't try to do every platform; instead, just pick the one or two where your customers hang out most and focus your efforts there. You can post to social media sites for free, but most platforms have a pay to play option. That means you have to spend money on ads and promotions to reach a specific target audience. So allocate some of your marketing budget to promote your social content and to create social media ads. The good news here is that a small amount of money ($100 or less) can often expose your content to hundreds or potentially thousands of people.
Images are at the heart of social media, but you can save money here, too. For social media graphics, and blog headers, you can use a free tool5 and create them yourself. It's not the same as having a professional do it, but it will work when starting out.
When should you use a marketing agency?
When you have a small budget, it's tempting to keep everything in-house. But this can be a mistake, especially if you don't have the expertise or the time. For example, when done well, optimizing your website for SEO can result in improved brand reputation, more website traffic, and higher conversions. Similarly, creating high-converting PPC campaigns is a specialist task. If you have limited funds to spend on marketing, investing in an agency specifically for SEO and PPC is a good way to help customers find you. As your business grows, you may not want to handle content marketing, email marketing, and social media marketing yourself. Rather than outsourcing everything, which could be costly, consider hiring an employee who specializes in marketing to take care of those tasks.
What to avoid when allocating resources to marketing
When you're deciding where to spend your marketing budget, there are a few mistakes to avoid:
Don't keep your strategy in your head. Write out your marketing plan so you know your strategies, tactics, platforms and expected results. Whether you're handling marketing in-house or outsourcing to an agency, it's the only way to make sure you're on the right track.
Avoid tactics where you won't reach the right audience. For example, if your customers are part of the younger generation, they'll be looking for you online. Billboards and TV ads will be less effective for that demographic.
Don't think short term. With many marketing channels, you can't expect to see immediate results. You need to give your marketing time before you can assess its success or failure.
If you avoid these mistakes and balance in-house and agency expertise, you'll be able to realize good returns, even with a small marketing budget.