“How much should I be spending on marketing?”

This is a question that gets asked on just about every consult I have with a small business owner. Not because they haven’t considered marketing before, but because the idea of focusing more marketing efforts towards the internet seems to be a bit unfamiliar. Besides, the internet is still relatively “new” compared to the rest of the marketing mediums (paper ads, billboards, radio, etc.). But still, deciding on what should be spent is not as direct of an answer as it is a question.

What makes the decision hard is that there is really no definitive answer. The answer varies on many, many variables. Your company’s situation will be different from another’s, so it’s always best to consult with a marketing professional, especially if that initial consultation is of little or no cost to you.

As an SMB, how much should you spend on marketing?

Before marketing, you need goals. Before goals, you need motivation. Your goals will determine how much you should spend. Increasing revenues by 5% will require much less marketing spend compared to if you were wanting to increase revenues by 20%. So this is where you should start.

Before marketing, you need goals. Before goals, you need motivation. What's your motivation? Click To Tweet

Many times, however, small business owners aren’t sure what their goals should be. Is a 10% increase what you should be looking to gain? Is that too much or too little? While it may seem like each question just turns into a series of other questions, it will stop, eventually. Eventually, you will get to the bottom of the question-funnel and you’ll be able to answer the high-level question of “how much should I spend on marketing?”

The Motivator: Determine why your revenues need to increase

Business Motivation

Should your company increase revenues by 40% this year? Or will 5% suffice? You need to understand WHY you’re wanting to grow. Many business owners get in the mindset of “we just need to grow” but without any reason for it. That mindset is not a profitable mindset.

Here are some common motivators for needing to increase business revenues:

  • The need to hire more employees
  • The need to expand its product line to more locations
  • The need to produce more quantity (or output) in a given time period
  • The need to expand the manufacturing (or office) space with a new, larger building

Unfortunately, “the need to advertise” is not a good motivator for increasing revenues but many small business owners have the mindset that they just need to advertise. You must have a reason to want to spend money to make money.

Your motivator will be what drives your goals. Your goals will be what drives your marketing.

Now that you have goals, let’s set aside a marketing budget for your small business

Budgeting with money and a calculator

Let’s say your company makes $500k in annual revenue and you want to purchase a new office building which costs $25k per year. A 5% increase in annual revenues would be just enough to cover the new costs of the office building, so you decide that a 10% increase is the goal. Your company’s new annual goal is $550k per year.

To make a 10% increase in revenue, what needs to happen? Well, you need to either increase prices by 10%, increase sales by 10%, or a combination of both. Neither are easy. For this ongoing example, we’ll focus on increasing sales by 10%.

Great! You have just determined your growth goals and you have an excellent reason as to why this needs to happen. We now have a starting point.

Different ways you can allocate your small business marketing budget

“Sales” is a system of funnels. Website traffic to leads, leads to warm leads, warm leads to sales leads, sales leads to customers. With the end goal being a 10% increase in the final stage of the funnel (closing the sale), every stage of the funnel that comes before sales needs to be influenced by a collaborative 10%.

You don’t want to throw all your marketing dollars in one bucket. That’s never a good idea, with anything. A healthy marketing portfolio will ensure that there are always several different pieces of the marketing puzzle working together. You want to divide your marketing spend between awareness, attraction, conversion, closing, and other forms of communication, in order to cover the majority of the marketing and sales funnel.

In regards to online marketing, there are several tactics and mediums available for marketing your small business:

  • SEO (search engine optimization) for attracting targeted website traffic
  • Conversion Campaigns and Analysis for capturing leads and increasing the rate of visitor-to-lead conversions
  • Content and Email Marketing for ensuring you provide enough information to funnel a lead through to close
  • Paid Advertising to influence a more stable flow of traffic to your conversion campaigns in the early stages of marketing
  • Social Media Advertising / Listening / Monitoring

The rates at which you spend in each category will depend on how much marketing you are currently doing, the popularity and analytics of your website, your sales process, your target audience, etc. A marketing professional’s job is to help spread your resources over the funnel in a way that CAN influence a 10% increase in the final stage: closing the sale.

Note, it’s important to consider that the list above does not include any offline components, which should always be considered when approaching a holistic business marketing strategy.

Ensuring you receive a positive ROI in marketing

Marketing is a numbers game. It’s all about the metrics. This is why internet marketing is so powerful: EVERYTHING IS TRACKED. Internet marketing analysts have almost unlimited data at their disposal and, when interpreted properly, can show continual increases in traffic, conversions, and new sales. The tools available to marketers today in internet marketing are astounding.

What does this mean for you, the small business owner?

It means that by investing in internet marketing (inbound marketing, SEO, PPC, CRO, etc.) you are giving yourself the best possible ROI as long as the data can be interpreted properly. Keep in mind, WHO performs your marketing implementation has a lot to do with it as well.

Growing your small business with online marketing

Don’t get sucked into the “SEO” buzzword. SEO alone is not a marketing strategy. You can be ranked #1 and pull in excess loads of traffic all day long and the #3 ranked company will outsell you. An effective online marketing strategy depends on more than just SEO and traffic generation, it depends on conversions and sales.