Typical Marketing Budget for Small Business to Unlock Success

February 26, 2024

Running a small business is like setting sail on a grand adventure. Like any explorer needs a map, your business needs a well-defined marketing budget. In this journey, we'll dive deeper into the typical marketing budget for small businesses. 

Learn the process of determining your own budget, see a practical example, and read tips on how to make the most of every marketing dollar. 

How Much Do Small Businesses Spend on Marketing?

Marketing drives sales and connects your brand with new customers. According to the Small Business Administration (SBA), on average, businesses spend about 1.08% of revenue on advertising, with variations by industry_[1]. 

They also say that business-to-consumer (B2C) companies usually allocate more: 

• 9.6% for product companies
• 11.8% for services

There's no one-size-fits-all answer.

Let's consider an example to understand this better. If your small business generates $100,000 in annual revenue, dedicating 8% to marketing would mean a yearly budget of $8,000.

In the beginning, you might need a higher budget to build awareness. However, as your business grows, you can adjust. Be cautious of a "chicken-and-egg" situation. Cutting your marketing budget when sales drop can make things worse. 

Stay flexible, monitor your industry benchmarks, and consider increasing marketing during slow times when competitors cut back. Remember, marketing is an ongoing need to attract and keep customers.

How to Determine Your Small Business Marketing Budget

You need to consider a few items when setting your marketing budget. Your goals, current situation, and audience are the key determinants of how much you might need to spend to attract customers. Let’s explore each for deeper insights. 

Define Your Company's Marketing Goals

Imagine you're the owner of a small boutique that specializes in unique handmade gifts. Your marketing goal could be to increase online sales by 20% within the next year. This clear goal helps shape your budget, directing funds towards strategies that align with your objective.

When your eyes are set on a precise target, you can assign funds to areas most likely to help you achieve your goals. 

Assess Your Current Situation

Let's say your shop has been active on social media, but you notice that foot traffic has been slow. Drawing inspiration from local happenings, like the annual Art Walk in Chesterton, you decide to evaluate your current marketing performance. By attending the Art Walk as an observer, you assess the local market and discover opportunities for engagement and collaboration. 

To increase foot traffic, local and in-person marketing strategies might be more productive than digital marketing strategies. Or, you may find that ramping up your Google and Yelp profiles is more beneficial than posting images of your products on Instagram. 

Know Your Audience 

Imagine you run a cozy cafe in South Bend, Indiana. Your goal might be to attract more locals and students from the  nearby Notre Dame campus. Understanding that the local community is vital, you could allocate a portion of your marketing budget to sponsor events at Notre Dame football games. Similarly, you may decide to participate in and sponsor local festivals.

When you know your audience, you can find out where they hang out, both online and offline. Then, you can steer your marketing appropriately. 

A Small Business Marketing Budget Example

Let's put these concepts into action with a practical example for a fictional business, Hoosier Handmade Bling. This company has a small brick-and-mortar shop and has recently launched an online store that they need to promote. They have decided to set the quarterly budget at 8% of last quarter’s sales, which totaled $25,000. 

If Hoosier Handmade Bling’s total marketing budget for this quarter is $2,000, this is how they might use it. 

1. Online Presence (30%)

Given the goal to increase online sales, Hoosier Handmade Bling allocates a significant portion of its budget to build a robust online presence. This includes investing in a user-friendly website, leveraging social media marketing, and optimizing for local SEO to cater to the Indiana audience.

Self-built website: $300

Instagram targeted advertising: $200

One SEO-optimized blog post: $100

Total: $600

2. Local Sponsorships (20%)

Understanding the importance of community connections, Hoosier Handmade Bling earmarks a portion of the budget for local sponsorships. They decide to sponsor the annual Art Walk in Chesterton, an event that aligns with their brand and attracts a diverse local audience.

• Chesterton Art Center donation: $300
• Targeted print brochures: $100
• Total: $400

3. Coho Salmon Fishing  Marketing Campaign (15%)

In an effort to engage with the community's interests, the boutique initiates a marketing campaign around Coho salmon fishing. Hoosier Handmade Bling makes fly fishing-inspired earrings from feathers, so this is a great community to promote to. The “Soho Salmon Fishing Campaign” leverages social media, email newsletters, and partnerships with local fishing groups. 

• Professional photography: $150
• Targeted social media post creation: $50
• Email newsletter writing: $50
• Community collaboration/giveaway: $50
• Total: $300 

4. Digital Advertising (20%)

Understanding the effectiveness of digital channels, "Hoosier Handmade Jewelry" invests in targeted digital advertising to promote their general offer. They use Google Ads and social media platforms to reach their target audience effectively. Regular monitoring allows them to adjust their strategy based on the campaign's performance.

• Google Ads: $200
• Instagram Ads: $100
• Pinterest Ads: $100
• Total: $400

5. Print Collateral (15%)

Recognizing the power of tangible materials, the boutique allocates funds for print collateral like brochures and flyers. In addition to the Art Walk brochures, Hoosier Handmade Bling invests in a general print campaign to get its name out. These materials highlight the uniqueness of their handmade jewelry and are distributed at local events and businesses, subtly incorporating local landmarks and references.

• Business cards: $100
• General brochures: $150
• Flyers: $50
• Total: $300

This example showcases how a small business might make the most of a modest marketing budget using a targeted approach. 

This is How to Make the Most of Your Marketing Budget

Now that you've allocated your budget, let's explore some tips to maximize its impact.

Leverage Free Digital Marketing Channels

tools. For Hoosier Handmade Bling, maintaining an active online presence allowed them to connect with customers beyond the physical storefront. 

Moreover, many digital marketing channels are free for those who have time to invest: 

• Google local listing
• Yelp business listing
• TikTok business account 
• YouTube videos and shorts
• Instagram business profile
• Pinterest business profile 
• Facebook business page
• LinkedIn business page
• Medium (blogging) 
• Reddit and niche online forums
• Trustpilot and other rating sites

Build Community Connections

Engaging with the local community is essential. Attending events, participating in festivals, and supporting local causes enhance brand visibility. While you want to get involved with the consumers, connecting with businesses can be huge. A membership with your local chamber of commerce will likely help you make invaluable business connections. 

Take it further by partnering with businesses in related markets to develop giveaways and group promotions. What companies are your target customers and clients already doing business with? And which businesses would your customers and clients benefit from learning about? Partner with these brands to maximize your reach and help promote other local businesses. 

Conclusion 

In the grand scheme of entrepreneurship, a well-thought-out marketing budget is the compass that guides your business toward success. As we've explored the typical budget, defined goals, and allocated funds in a practical example, remember that optimism and strategic planning can unlock boundless possibilities. So set sail confidently and watch your business venture into new horizons.

For further guidance on managing your finances effectively, explore our money management tools.

Note: This article is a guide, and the budget percentages and examples are illustrative. Actual allocations and cost may vary based on business specifics.

Sources: 

[1] https://www.sba.gov/blog/how-get-most-your-marketing-budget