How Much Should You Spend Marketing A Small Business

How Much Should You Spend Marketing A Small Business

I’m the first to admit that finding a balance with marketing your business is a constant challenge. You don’t have the endless budgets of say a Coca Cola or McDonald’s; your budget comes with limits.

For small businesses, your investment has to pay off, almost in real time. It’s your money, you’ve worked bloody hard for it. What’s even scarier, you’re spending your money on the hope of future results, nothing is guaranteed –  which is where many business owners get scared off.

But let’s face it, if you want to survive and outlast your competitors, the saying is true: “you need to spend some to make some”. Remember cash flow is oxygen; over-spending for little return is just as painful as not spending enough, and your revenue and market share disappears as a result of it. You’re going to need to find a level of risk that you’re comfortable with just like any investment.

You need to ask yourself this question: “Do I have a realistic budget to market my business and achieve my goals?

Now before you answer that, just wait for a second.

I speak to a lot of small business prospects and almost all of them say the same thing.

The conversation goes something like this:

  • Me:What do you want to achieve?
  • Prospect:I want to crush my competitors. I want to break them until they beg for mercy…
  • Me: “…” (*trying to say something as I’m interrupted and Prospect continues*)
  • Prospect: “…I’m going to dominate my industry. I’m going to franchise. I’m going to go global…” (you get the point)
  • Me:OK, great! So let’s discuss what your budget is for global domination.
  • Prospect:I’m willing to invest about $500 per month…

You see the irony in that conversation.

My point is, that many business owners are setting completely unrealistic goals in regards to marketing their businesses. There’s an expectation that maximum reward is built from minimum expenditure. You don’t want to be the director that wants to “dominate” your competitors on a shoestring budget – not only will that fail, but your competitors will be laughing all the way to the bank.

So let’s get realistic for a second.

What’s the benchmark spend for a small business?

Look, I can’t tell you exactly what you should spend, you’re going to have to figure that out for yourself. To be honest, every business is going to be a little bit different and your level of investment will be driven by how aggressively you want to play.

It would be unreasonable to think that a local business, wanting leads in a surrounding area, would need to spend the same amount as a business wanting to steal market share and grow to “one billion dollars…..“.

In reality, your budget should be relevant to your revenue, so let’s start with that.

Here’s a general rule of thumb:

  • Up to 5% to 7% of your total revenue: You are maintaining your existing sales.
  • Up to 7% to 10% of your total revenue: You are growing your business and being competitive.
  • Up to 10% to 15% of your total revenue: You are dominating, being aggressive and seeking brand saturation.

Remember, that this is all relevant to your competitors’ spend too. You won’t be dominating if you’re spending 15% of $200K and your competitor is spending 15% of one million dollars.

So let’s look at it from another angle – what can you expect to get for your money?

What can you expect to spend?

Now before you make the mistake of telling someone you’re going to dominate your industry, let’s first discuss the cost you might have to pay to actually see some results.

Note: this guide will focus more on digital marketing, because that is what we know and it’s the place we feel most businesses will invest first. However, we’ll try to include some offline channels just to give you an idea; feel free to add your comments below.

Less than $500 – You’re joking right?

If you spend $500 on your business, it either means that your revenue is incredibly low, i.e. you don’t have any, or you’re more stingy than Ebenezer Scrooge. You’re better off spending your money on a Netflix subscription to help you manage boredom and help you deal with all of your free time.

A budget under $500 will get you:

  • A 12 month subscription to Netflix, so you can watch entrepreneurial docos
  • A slab of beer and a couple of packets of corn chips
  • Nothing much else

Let’s get realistic OK, I’m going to move on.

$2000 or less – You’ll need a lot of free time.

With this budget, you’re probably a brand new startup and your annual income is less than $20,000. I get it, everyone starts somewhere, but with this level of investment you’re going to need a tonne of your own time and you’ll be hustling your face off while you wait for word-of-mouth to see your business grow.

A budget under $2000 might get you:

  • A crappy ‘template’ website using WIX or Squarespace, that’s only visited when people see your business cards
  • A shared web hosting package, where your website spends more time offline than it does online
  • A cheaply designed stock logo and some business cards
  • Some free social media accounts that never get updated
  • A couple of cheap Udemy courses

To be honest, you’re not getting much at this price point and you can expect to be working 16-hour days. You’ll need to become a marketing ninja and be OK with the idea that you’ll be going at it alone for some time. Your growth will be slow, and the growth will be determined by the sheer effort and power one person can put behind their business.

$2000 to $5000 – You’ll have a presence

At this point, you’ll still be getting the basics, but you should also be able to start getting some very limited outside help. With whatever you do, you want it to be the start of building strong foundations for your business so future marketing can have a greater impact (hint: spend it on a performance website). However, this level of investment means that the only time someone will find your business is when you tell them about it.

A budget of $5000 might get you:

  • A basic WordPress website, overloaded with ‘sliders’ and ‘flashy animations’ that you thought customers wanted
  • Entry-level email marketing using MailChimp, but you won’t have any subscribers to actually send anything to
  • You’ll get a fancy logo and maybe add some shine or a bevel, so your cards stand out in the raffle jars
  • You’ll start to use your business cards by throwing them at anyone that gives you attention at cheap conferences and meetups

$5000 to $10,000 – You’ll get some eyes on your brand

This price point will allow you to dabble into online marketing and you can start to focus on getting some external help. If you’re lucky, and you employ experienced people, you can expect to see some organic growth and leads generated through a variety of channels.

This budget is best suited for businesses with $50K to $100K in revenue. Furthermore, this budget is probably best suited for lower-competition local businesses, freelancers and solopreneurs. If you want faster results in the early days of your business, it’s simple – you need to invest more money.

A budget of $10,000 might get you:

  • A performance website or an online store that can actually generate sales, finally!
  • Improved local search optimisation, but you’ll probably still wait 3 to 6 months to see any benefit
  • A dedicated and reliable website hosting service, so you can stop calling tech support about it being constantly offline
  • Entry level email marketing and something like OptinMonster to actually start building your list
  • A trivial amount of money left over to trial Google AdWords or Facebook advertising, but you’ll probably waste most of your budget trying to do it yourself
  • Some entry level marketing training or digital workshops, as you’ll still be doing most of the marketing yourself

$10,000 to $20,000 – You’ll start receiving organic leads and sales to your business

For businesses with revenue between $100K and $200K per year, this is likely the budget with which you’ll want to start. Your goal is to start seeing marketing expenses turn into business investments. Remember, if you can turn $1 into $2, then the game changes and you begin to see the value in investing higher amounts.

A budget of $20,000 might get you:

  • A performance website or an online store that can actually generate sales, finally!
  • Analytics and reporting, so you know exactly where your leads come from
  • Some limited SEO, SEM or Social Media consulting (3 to 6 months) – don’t be fooled by cheap services, you’ll regret it. Invest in quality SEO.
  • More advanced marketing automation, such as ActiveCampaign, and some eBooks you created to build your list
  • Limited print advertising or some form of offline promotion like a letterbox drop
  • Limited copywriting services for brochures, your website or some other kind of media
  • Limited video marketing for a decent explainer video or short advert

If you spend some time choosing who you’re going to work with, you’ll benefit from having the right experience to ensure you get a result from this level of spend.

$20,000 to $50000 – You want to be highly competitive online

At this investment level, you’re starting to take your marketing seriously. You’re most likely an established business operating at between $200K to $500K in annual income, and you’re looking to launch your business into seven-figure growth. You want to be competitive and highly visible online, and you want to steal some of the leading competitors’ market share.

A budget of $50,000 might get you:

  • A performance website or an online store that can actually generate sales, finally!
  • A marketing automation system such as Infusionsoft, HubSpot or ActiveCampaign
  • 12 months of search engine optimisation and an exponentially growing source of organic leads
  • Paid traffic optimisation and management, and an ad spend of $1000 per month.
  • 12 months of social media consulting, where someone will do it for you.
  • Limited print advertising or some form of offline promotion like a letterbox drop.
  • Limited copywriting services for brochures, your website or some other kind of media.
  • Limited video marketing for a decent explainer video or short advert.
  • At this point you’ll be using 3 to 5 different channels of marketing.

$50,000 to $100,000 – You want to dominate and have brand authority

At this budget level, you’re ready to dominate. You’re tired of coming second place and you want to be ‘top dog’ and ‘numero uno’ at a national and/or state level, and potentially be more aggressive in overseas expansions.

A budget of $100K might get you:

  • A performance website designed to convert with integrated on-page SEO and analytics
  • A marketing automation system such as Infusionsoft, HubSpot or ActiveCampaign, and consulting to make it all work
  • 12 months of search engine optimisation consulting on a higher end package
  • Paid traffic optimisation and management, and a solid ad spend of $1000 to $4000 per month
  • 12 months of social media management on a higher end package
  • Print advertising, some radio advertising or other forms of offline promotion
  • More consistent video marketing or projects
  • You’re using 4 to 6 different marketing channels

So What Should You Invest In?

So now that you know how much you should be spending, the question should be: “What should I invest it in?“.

Again, for me to answer this question, I would have to know and understand what you’d done to this point so far. I can provide an educated guess, but I want to be upfront with you too – I’m recommending the following to you not because it’s what we do, but because I know it works. I’m fortunate to work with a tonne of small businesses and I’m across a whole range of marketing channels, and hands down, the businesses who implement the below see the best results.

If you know me, you’ll know that I’m as honest as the day is long; put your money where it has an impact, otherwise you’re wasting your time.

  1. A high performing website – It’s literally the backbone of everything you do online; this is a priority for you.
  2. A Google AdWords campaign – Don’t believe people saying that “AdWords is crap” or “AdWords is too expensive”. This is one of the most cost effective sources of traffic you can find.
  3.  A search optimisation campaign – Start with local SEO, and then when that’s profitable, work your way up to higher competition terms.
  4.  Email marketing – seriously, the amount of businesses I see not doing this is crazy. If you’re an eCommerce site, put this at #2.
  5.  Content marketing – so many businesses get it wrong, but if you use the right strategy, this is one of the most cost effective strategies if you target the questions your customers are asking, and answer them with the same level of depth I’ve gone into in this article.

So what have we learnt? By now you know that if you want to grow, then you’ll need to spend 10% of your revenue or more on marketing. But if global domination is your goal, you’ll not only need to spend 10 to 15% of your revenue, but you’ll also have to match what your competitors are spending too.

Be realistic – there’s no point trying to win a drag race if you’re running an 86 Datsun and you’re up against Hector who is going to be running three Honda Civics with spoon engines. And on top of that, he just went into Harry’s, and he ordered three T66 turbos, with NOS and a Motec exhaust (if you don’t get that, go and watch Fast and the Furious).

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