One of the most frequently asked questions we get at Dashboard Interactive Marketing is, “How much should we spend on our marketing?” We understand that small and medium-sized businesses (SMBs) have a finite budget and that marketing is an investment for you.
The question “How much should I spend on marketing?” differs greatly from one business to another. Below, we break down the basics of marketing budgeting, with the goal of helping our customers understand the basics of budgeting for their digital campaigns.
Why Budget Your Digital Marketing?
I’m sure that you run your household on a budget. How much that budget is and what you spend your monthly income on, whether it’s groceries, rent, electricity, insurance, gasoline, or various forms of entertainment, varies greatly depending on who lives in the household and where your priorities are.
The same may be said for a digital marketing budget. Like your household budget, a defined budget keeps spending aligned with business goals and prevents overspending. It also helps you track ROI. You can then adjust the strategy as the returns become evident, putting more money behind winning tactics and slowing or stopping those that aren’t working well for you.
What’s Normal? Industry Benchmarks for Small and Medium-Sized Businesses
Now let’s take a closer look at digital marketing budgets for SMBs. Just as the economic forecasters can benchmark the “normal” or “average” rent or grocery bill most people pay each month, we can provide benchmarks for “normal” digital marketing budgets, too.
According to the Small Business Administration, the average small to mid-sized business spends 1-5% of its revenue on marketing. Retailers and companies in highly competitive markets spend more, often up to 10%. Companies in startup mode also tend to spend more to build brand awareness and a customer base. A good rule of thumb is that companies selling to consumers (business-to-consumer, or B2C marketing) typically spend much more than business-to-business (B2B) firms.
Lastly, companies must consider their goals and needs when determining marketing budgets. One company may need to generate more leads and sales, and be willing to invest heavily in marketing costs to accomplish this goal, even if the cost is more than 5% of their annual revenues. A rule of thumb is an average, which should be adjusted based on expectations, goals, and market realities.
How to Determine Your Ideal Budget
We recommend meeting with us to discuss your digital marketing budget. During this call, we learn all we can about your business, what you are selling, and to whom you are selling it. We want to know and understand your goals. Are you trying to increase brand awareness, generate leads, or scale aggressively? Your goals determine the digital marketing budget. Lead-generation and e-commerce typically require higher investment than brand-only campaigns.
Consider Your Growth Stage
Another very important factor when determining marketing budgets is the growth stage. New businesses need added marketing activities to build brand visibility quickly. Marketing at this stage is like fertilizer for a plant; it helps your business put down strong roots, grow, and flourish.
Established businesses can maintain or optimize existing channels with a moderate budget. If established businesses want to enter new markets or launch new products or services, that increases marketing spend. New means more effort must be put into building customer awareness, which means an increased expense.
Evaluate the Competition
Who are you up against? Highly competitive sectors (legal, healthcare, retail, tech) often require above-average investment to stand out. We sometimes find that the cost per click for digital ads in these fields is above average, which requires a higher ad budget. Additionally, specialized expertise may be needed to create content for tech or healthcare clients, or we may need to build or acquire customer lists that cost more for these markets. All of these factor into the budget conversation (which is why we like to meet with you and ask a lot of questions at the outset).
Are We Spending Enough or Too Much?
Many companies wonder if they are spending too much. We often feel like companies aren’t spending enough. How can you tell when things are just right, and the marketing budget suits the action plan?
If you aren’t achieving your goals or getting leads and sales, it’s often a sign that your marketing budget isn’t enough. If your current marketing budget is achieving your goals, it’s probably just right. To increase sales, increase the marketing budget. But increase it in the right way: focus on activities that generate positive results. Working with a digital marketing partner like Dashboard helps you keep track of the metrics since we are very focused on analyzing the performance of all marketing plans for our clients.
Ready to Achieve Your Digital Marketing Goals?
Dashboard Interactive is a digital marketing agency focused on its clients’ long-term success. We are a certified Google Advertising Partner with a strong track record of helping local businesses achieve their lead-generation and sales goals. We would be happy to discuss your marketing plans and budget and see if we’re a fit. Contact us at 763-242-2454.