What is a Good Marketing Budget for a Small Business?

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Creating a marketing budget for your small business can involve plenty of guesswork, especially for a first timer. It is easy to know that marketing is essential. What is not easy is to develop, plan, and assign funding amounts to that plan that are both aggressive enough to be effective yet modest enough to not sink your small business.

So what is a good marketing budget for a small business? There is a defensible answer, and it does not come from trial and error. It comes from tying a percentage of revenue to a plan you can execute, then measuring what each channel returns.

What Is a Good Marketing Budget for a Small Business?

A good marketing budget for a small business is a planned percentage of gross revenue, committed for a defined period, allocated across specific channels, and reviewed against results. For most small firms that percentage lands between 2 and 10% of gross revenue, and the right number inside that range depends on your margins, your growth targets, and how competitive your industry is.

The word “budget” matters here. A marketing budget is not a wish list of tactics. It is a funding decision with a ceiling, an owner, and a review date. Without those three things, marketing spend drifts, and the drift is what sinks small businesses rather than the size of the number itself.

How to Set a Marketing Budget for a Small Business

In the past, putting together a marketing budget for your small business required a lot of guessing. This method of trial and error is both costly and unsuccessful. Instead, opt for a more methodical approach that is applicable to the specifics of your business plan.

Why Marketing?

Knowing why you need a marketing plan and why you need to spend money in this area is step number one. Marketing helps to grow your business. Product, service, and price are three of the main ways to remain competitive and are good guides for how to develop your marketing plan.

As a startup it is easy to feel like you are hemorrhaging cash and that you want to cut back in as many areas as you can to regain control over your cash flow. While cutbacks and streamlining are not bad ideas, be advised that doing so in certain areas as opposed to others can do more harm than good. The hope of effective marketing is that you will generate leads that turn into clients, who develop an allegiance to your business exclusively.

That allegiance is the part most budgets undervalue. Winning a new customer costs more than keeping an existing one, so a budget that funds only acquisition and nothing for retention tends to buy the same customer twice.

Small business owner and bookkeeper reviewing a profit and loss statement and a marketing plan

Analyze Your Marketing Costs

Business owner comparing printed marketing agency quotes and cost breakdowns

Different marketing strategies will come with different price tags, and shopping around is one way to be respectful of both your budget and your goals. Research different approaches and the costs associated with each. Seeing these totals can be a quick way to eliminate costly options that do not make sense for your needs at this time. SEO is an extremely popular way to increase your online marketing efforts in the online arena. Since the majority of consumerism now includes an element of online activity in some way, shape, or form, spending money here makes sense in almost every scenario.

You can review a guide on SEO pricing to help you determine the marketing budget to use on this approach. SEO is layered, which gives you as the business owner an element of flexibility. If you are not someone who is knowledgeable about how to optimize in this way, it is best to contract this element of your marketing plan so that you are not wasting your valuable, and likely limited, time here that could be better used in other areas of developing your business.

Before comparing prices at all, be clear about who you are trying to reach. The SBA’s guidance on market research and competitive analysis covers the demand, market size, pricing, and location data that tell you which channels are worth funding. Costs only mean something once you know which audience they buy.

Research Marketing Effectiveness

Two colleagues reviewing website traffic and sales figures on an office monitor

If you’re producing less than $5 million in sales per year and your net profit margin, after all expenditures, is in the 10% to 12% range, the US Small Business Administration (SBA) suggests spending 7 to 8% of your gross revenue on marketing and advertising. According to some marketing professionals, startups and small firms often devote only 2 to 3% of their sales to marketing and advertising. However, depending on how long you’ve been with the company and how competitive your industry is, some marketing gurus recommend a range of 1 to 10% or more.

These figures are clearly all over the board. While some may be self-serving, the SBA’s 7 to 8% of total income appears to be a reasonable standard. What if you’re not yet profitable? Apply the above proportion to your company plan’s expected revenue. What is true is that what works for one may not always work for all. Creating a marketing plan for your business should be based loosely on what strategies are proven to work universally.

Treat any percentage as a starting position rather than a verdict. A business defending an established customer base can sit at the low end. A business entering a crowded market, launching a product, or opening a second location has to buy attention it has not earned yet, so it belongs at the high end. Set the percentage, then check it against what your pipeline actually needs to produce.

Executing the Marketing Plan

Once you have your marketing plan developed, you need to consider where you will execute it to maximize its effectiveness. Are you going to begin a massive digital marketing social media campaign? Start a blog? Create a YouTube channel? Focus on local efforts? Knowing the effectiveness rate of each approach will help you justify the costs associated with them.

Marketing coordinator reviewing an email campaign beside a printed content calendar

Virtual marketing efforts are notorious for being on the lower end of the cost spectrum. Once you have a healthy contact list for your customers and target market, think about how email can increase sales from a marketing standpoint, and how to incorporate it into your budget.

Email is a good way to extend benefits and appreciation to your customers as well, which is a good marketing strategy to encourage repeat business. Email is also a great opportunity to promote SEO efforts, because you can include ease of access and increase traffic back to your website by including links and clickable images in these emails.

Whatever the channel, the claims you make inside it carry legal weight. The FTC’s advertising guide for small business sets out the truth in advertising, substantiation, and disclosure rules that apply to email, social posts, and paid ads alike. Budget for compliant creative rather than for a rewrite after a complaint.

Know What is Included in Marketing

You know what a marketing plan is, but what you may not know are all the pieces that come into play to put your plan into motion. To be able to keep your budget realistic you need to acknowledge each of these pieces and understand their value. Here are some elements to consider:

Software and tools: Take advantage of any services your existing software can provide towards your marketing efforts before investing in something new. Audit the subscriptions you already pay for before adding another.
Payroll: If you plan to add marketing to an existing employee’s work load, you should anticipate the potential for a request for an increase in salary. If you are hiring out new team members or consultants to handle your marketing, consider those costs as well.
Swag: If your marketing campaign includes tangible goods to promote your brand, those will add to the cost. Things like t-shirts and drink koozies are popular examples, and shipping and storage belong in the same line item.
Paid media: Search and social advertising is a recurring cost rather than a one-time purchase. Fund it for long enough to gather usable data, or do not fund it at all.
Measurement: Analytics, call tracking, and reporting time cost money too. Spending without measurement turns the whole budget into guesswork again.

Set a Marketing Budget for Your Small Business

On a day-to-day basis, marketing budget refers to all expenditures for marketing, advertising, public relations, promotions, and everything else that falls under the broad umbrella of marketing, such as search advertising, social media, print advertisements, sponsorships, collateral, and events. When the results of your sales and marketing cycle are reviewed, it is hard to ignore the fact that good marketing is worth your initial investment.

Write the number down, assign an owner, and set a quarterly review. A budget that nobody revisits becomes a ceiling that no longer matches the business. The firms that get the most from a modest budget are the ones that treat it as a documented process, not an annual guess.

Frequently Asked Questions

What Percentage of Revenue Should a Small Business Spend on Marketing?

The SBA suggests 7 to 8% of gross revenue for firms under $5 million in sales with net profit margins in the 10% to 12% range. Many startups and small firms spend only 2 to 3%, and recommendations across the industry range from 1 to 10% or more depending on tenure and competition.

How Do You Set a Marketing Budget Before You Are Profitable?

Apply the same percentage to the expected revenue in your business plan rather than to revenue you have not earned yet. Fund the channels you can measure first, keep the commitment period short, and revise the number once real sales data replaces the projection.

What Costs Belong in a Small Business Marketing Budget?

Include software and tools, payroll or contractor fees, swag such as t-shirts and drink koozies, paid media, and measurement. Marketing salaries and agency retainers are usually the largest line items, and leaving them out is the most common reason a budget looks affordable and then is not.

Is SEO Worth the Marketing Budget for a Small Business?

SEO is layered, so you can buy as much or as little as your budget allows, which makes it one of the more flexible line items. If nobody in house knows how to optimize, contracting the work usually costs less than the owner’s time spent learning it.

How Often Should a Marketing Budget Be Reviewed?

Review the budget quarterly and after any campaign large enough to move the sales and marketing cycle. Compare spend by channel against leads and closed business, then shift funding toward what produced results instead of repeating last year’s allocation.