What Is a Good Marketing Budget for Small Business?
When it comes to marketing a small business, many wonder which comes first, the chicken or the egg? You need to increase marketing to grow revenue, but you need increased revenue to grow marketing.
We talk to small business owners and CEO's all the time, and they are all asking the same question: "what is a good marketing budget for a small business?"
There are many ways to market a small business or startup and not all of them are expensive. Different variables and factors will impact the bottom line of your marketing budget, and considering those factors can go a long way to helping you set an accurate budget that you can afford, and will help your business grow.
Marketing Budgets for Small Businesses
No business is the same. Even if you clone a business exactly, you will be at a different stage of growth than the original and your marketing needs will be different. So there is no cookie-cutter answer to "what is a good marketing budget for a small business."
The answer to that question will always be, "it depends." But what factors impact the response to that question?
Understand the Sales Cycle
Knowing how long the buyers journey takes for the average customer, you can plan your marketing spend more wisely.
For one of our clients, the sales cycle was around 18 months. There were layers and layers of negotiations, contract talks, and quality assurance reviews before a lead could become a customer. In this instance, we invested 100% of the marketing budget in long-term initiatives. In essence, we didn't target a lot of PPC (pay per click) advertising, opting instead to invest in educational content that would nurture a lead through that long, complicated process.
Deeply understanding the buyer's journey, and the obstacles along that path, help you to understand what marketing will influence growth, and what marketing may only deliver vanity metrics.
Identify the Real Metrics of Success
Sadly, a lot of marketers spend their budget on things that make them look good. And a lot of CEO's and Marketing VP's like seeing the metrics that make their marketers look good. Great marketers learn to ignore vanity metrics.
What good are 1,000 new visits when you have a bounce rate of 95%? Smart marketers understand this translates to only 50 new visits.
Take those numbers a step further - so what if you were able to lower your CPC (cost per click) by 50% when your CPA (cost per acquisition) increased by 200%.
All of these vanity metrics affect how we spend money, and marketers are great at identifying positives and conveniently leaving out the downsides of those false positives.
It's vital to identify what the real metrics of success are and adjust your budget to impact only those metrics.
Understand Your Marketing Budget ROI
Paying for landing pages and PPC ads can be significantly more taxing on a budget long-term than developing blogs. PPC ads can bring instant results and if done well, can bring a fast influx of quality leads. But every penny spent is gone forever.
To continue the results of your PPC ads, you have to keep spending money. When you stop spending, the pages stop converting and your leads dry up. However, write a blog once and if done well it will bring you free traffic for the next many years. But success through blogging takes time.
When planning your marketing budget, don't consider only metrics. Consider ROI as well.
Great marketing compounds its effectiveness. Bad marketing relies on spending to bring results.
3 Focus Areas for Your Marketing Budget
Depending on the stage of your company, its size, and its desired growth rate, you will be able to set a good marketing budget based on the things you include in your strategy. You must split your marketing budget between three areas.
If you're just getting started with marketing, focus on the first two. If you are an established company wanting to increase growth rate, you will need to concentrate on all 3. If you've been doing marketing for a while and need to increase conversion rates and close rates, investing in 1 and three might make more sense.
No matter how you slice it, these three areas are vital to marketing success.
1. Infrastructure
You need to have an infrastructure that supports your marketing initiatives.
So many companies spend thousands of dollars every month on PPC ads, sending every click to the home page.
After speaking with a PPC expert, I was amazed at how many small businesses are losing money on their PPC ads. Most of the time, optimizing the ads and giving them a landing page that is custom-tailored for that specific ad can increase their conversion rates and tilt their investment back to a positive.
But landing pages aren't free. Making a landing page for each major PPC ad campaign can get expensive. Then, you have also to consider improving conversion rates - it costs money to a/b test PPC campaigns. It costs money to a/b test and change, your landing pages.
If you're going to be successful in marketing, you need to plan on investing in your website. Without it, you put your marketing spend at a huge disadvantage.
Static Websites vs. Agile Websites
For decades, websites have been static online brochures. The only time they needed redesigned was when the product or service drastically changed, or the website was so outdated it needed to be redeveloped.
Today, the need for evolving websites is starting to become a must-have for every business. Not only is personalization coming to the web, but just adding pages, increasing the positive user experience, and assisting in growing conversion rates is critical to marketing success.
This new demand has given rise to a new term, "Growth Driven Design." We'll talk about it a lot in the future, but where marketing agencies have traditionally charged retainer fees for on-going work, website design firms are starting to see demand for on-going retainers for website development.
Just get prepared to allocate some of your marketing spend on things like landing pages, thank you pages, user experience updates, and more.
2. Acquisition
Customer acquisition is the sweet spot of marketing, it's where we bring in new leads and show off the conversion rates of our landing pages. Spending on acquisition is almost always a primary need in a marketing budget.
What Customer Acquisition Channels will you make a focus your spend?
Paid Advertising
The majority of small businesses have some form of paid ads in their marketing budget. The reasoning is simple: it's affordable, and is the easiest way to attract new, targeted leads to your website. But again, this is mostly a one-off channel, when you spend for a click, that money is gone and will never again attract another click.
For a lot of companies, especially for those with a short buying cycle, PPC ads make a lot of sense. For companies that need a quick jolt of new customers, PPC ads will be the primary way to drive those leads.
Evergreen Marketing Investments
For one company, we invested in long-term blogging and coupled it with heavy PPC ads at the beginning. This way, we could bring new customers quickly while also investing in a long-term, evergreen marketing plan. This plan resulted in us being able to phase out all paid advertising, completely replacing it with free traffic from our SEO blog posts.
Point being, if you're going to spend money on PPC ads, do so with the intention of eventually replacing that spend. Some companies will always be buying PPC ads, and that's okay. But as clicks are getting more expensive and converting lesser leads, a change in focus to long-term, evergreen marketing investments is needed.
Paid Brand Awareness
A third area of spend is paid advertising with a twist. It's remarketing, where you pay for ads only to people who have visited your website, or even a specific page on your website. These ads are almost always display ads, meaning they are an image, not a text ad.
The purpose of remarketing is to keep your brand in front of those who have visited your website in the past. This is why these ads work best as image ads. Your logo, your products keep appearing on websites, reminding them about your brand.
Clicks through remarketing are often much cheaper than bidding on keywords, and the conversion rate is much higher.
While I'm not a fan of PPC marketing as a major part of a marketing strategy, I'm a big fan of using remarketing to bring potential customers back "into the store."
Lead nurturing is a huge part of inbound marketing, and one that cannot be overlooked. You need to invest in creating content that can educate a person through the buying decision. This will cost money for eBook designs, graphics, infographics, and video production. Then, you have to also spend money on e-mail marketing and automation.
How To Spend on the Education Phase
Having an accurate budget for this phase requires you to understand the buyers' journey in detail. What is the most common steps people go through from lead conversion to becoming a customer? What can you create or do that will help them to get through those steps with as little friction as possible?
If you find that one step #5, most customers ask the same question, that's a good sign you need to proactively answer that question and automate the delivery of that answer right at the point where they want to know. This requires experimenting and pouring through metrics, but it's super powerful.
For instance, at Lean Labs, there comes a point where a lot of our potential customers want to know, not just our pricing, but why we price the way we do. Right now, we're developing an automated workflow that will answer these questions at the specific time they always come up in an automated way.
So, in the future, if you're in talks to hire Lean Labs, you will receive an e-mail offering you a free eBook that documents our pricing, how it differs from competition, and why we price the way we do. And, you will get it right about the time you are thinking about asking those questions.
Going Beyond the Close
A lot of companies end their marketing at the time of transaction. But there is a lot more to be done and so many companies completely miss it!
When planning your education phase budget, consider what happens after the transaction. Is there anything you can do from a content or marketing standpoint that can enhance the experience the customer has with their purchase?
For instance, I encountered a company at one time who was able to acquire free-trial customers at a very high rate. But a very low percentage were actually buying the product after they had tried it out. They asked me how I would fix that problem.
After playing with their app for a few days, I realized how complicated it was to master. So I pitched them the idea of creating an automated course that would take free trial customers and show them how to do some of the awesome things the app could do.
The company said they didn't want to invest in that, opting instead to invest in getting more free trial customers. A few months later, I was talking to a CEO at another company and found out they were paying subscribers to that app. When I asked him what he thought, he hated it.
His main complaint: they could never figure out how to make it work.
His solution: cancel and get something else.
When you're planning your marketing budget and strategy, don't forget your most valuable demographic: your paying customers. Give them what they need to be successful, to get the most from your product and service.
You may be at the end of this article thinking, "but you didn't tell me exactly how to make my budget!" That's correct. It's amazing how many people are searching for "marketing budget template" on Google.
The truth is, every company is different. You have different products, sales cycles, and buyers' journeys. Your budget won't be like anyone else. A cookie cutter budget is just an opportunity to waste money on non-effective marketing stuff.
Instead, make your budget align with your goals and marketing strategy. When you do that, and you adequately fund marketing infrastructure, customer acquisition, and lead education, you will have a good marketing budget.
Ryan's experience ranges from higher education to SMBs and tech startups. When not doing digital marketing, he's sure to be enjoying some kind of nerdy pastime.
