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How to create small business marketing budget

“How much should I spend on marketing?” This is a common question that SME CEOs ask. And the subsequent question is how to create a budget. If you are asking these questions, here are four action items:

How to create SME marketing budget - 4 action items that will help you

Action item #1. Do research to see how much budget other companies similar to yours allocate to marketing.

Every business is different and every industry is different. So there is no magic formula or number when it comes to marketing budget creation. Though, there are various researches and surveys done and they show some patterns. SMEs in the US and Canada spend on average about 2-10% of their revenue in marketing. It’s a wide range because lots of factors influence how much money SMEs are able to and willing to spend in marketing such as their margins, target audience’s expectation and buying behaviour, growth trajectory, and brand recognition (hint: the higher your brand recognition is, the lower your customer acquisition cost is - which means you can generate more leads with the same amount of money). B2C companies tend to have a higher marketing budget than B2B companies. Start-ups tend to spend more on marketing to create brand awareness.

Google to see what other SMEs like yours are doing. Also, have a look at survey results from organizations like The CMO Survey and Gartner to understand the overall trends. For example, understanding the new trends caused by COVID-19 is important and necessary. According to The CMO Survey's February 2021 survey report, the survey respondents' marketing budgets represent 13.2% of their revenue. It was 11.4% in June 2020 and 8.6% in February 2020 (see the graph below). It is the overall average and each economic sector has different averages as shown on the image below. B2C Product sector has the highest average of 18.6% and the next is B2B Services with an average of 15.5%. Your business is unique but no business or industry operate in vacuum. Knowing the trends helps you make informed decisions. And by the way, over 50% of the survey respondents are SMEs with less than 500 employees.

Action item #2. Ask yourself a series of questions to see how much budget you can comfortably spend on marketing.

The industry averages and trends are good indicators. But these are not the “rules” you must follow. If these don’t feel “right” to you, they might not be right for your business.

To figure out the right budget for your business that you feel comfortable spending, ask yourself the following questions:

  • What is your current cost per lead?

  • What is your current conversion rate? How many leads do you need to have in your top of funnel to generate one customer?

  • What is your average deal size?

Knowing these three numbers can get you to a specific number. For example, if your cost per lead is $300, your conversion rate is 8% (i.e. you need 12 leads to close one deal), average deal size is $30,000, you need to spend $3,600 (12 leads x $300) to make $30,000. Download this Excel spreadsheet template here to populate your numbers.

Now, with this calculation, you can calculate your marketing budget required to generate the revenue you hope to generate from your marketing effort. Are you happy with the number? Where do you think you can improve? Your cost per lead may be too high and can go down. Your conversion rate may need some improvement. See the action item #4 for how to create a game plan.

Before we move on to the next action item, here are two additional sets of questions you want to ask yourself to help you come up with the reasonable marketing budget for your firm.

  • Why are you investing in marketing? Are you a start-up who needs to create brand awareness? Are you an established SME who wants to more demand by establishing a marketing engine?

  • What are your short-term and long-term business objectives? For example, do you plan to sell your business in the near future or change of ownership is not on the horizon? Do you want to achieve a rather exponential growth or maintain your growth rate?

Action item #3. Measure every possible thing that you can measure so that you have your own data to refer to.

Your own data is the best data you can refer to and set as a baseline. Were you easily able to answer the first 3 questions in the section above? If you weren't, it is probably because of one of these three reasons:

  • You don’t have your own data because it is your first year investing in marketing. Start right by having the right tools in place to measure the progress and outcome.

  • You don't have much data yet because you don't have the necessary tools in place. Start using free tools available (such as Google Analytics for your website) and invest in the tools you need. Make it a priority.

  • You don't have much data yet because you haven't accessed and analyzed the data you already have. Learn how to use the tools you have and start analyzing your data. Make it a priority.

"Is our marketing working? Do we continue to investing in marketing or no? How do I decide?"

Without measuring your marketing’s impact on your bottom line, these questions will always annoyingly lingering in your head. This is not where you want to be.

Everything you do in marketing can be measured in some ways. For example, if you plan to increase inbound leads (i.e. those people who contact you via your website, email, or phone after learning about your business somewhere) by doing content marketing (such as publishing two blogs post every week), you can measure the number of website visitors, the number of website leads, and how many of those leads turn into sales qualified opportunities and deals. When you have this information and know how much you spend on content marketing, you can calculate your content marketing ROI. Are you happy with your ROI? Great. Keep up the good work. If you aren't happy, look further into your data to figure out what can be and should be improved. Being able to come up with a game plan from your own data analysis is really empowering.

Action item #4. Not sure where to start? Use the 6PM (6-Pillar Marketing) framework to create a game plan.

Reading all of these, you may be confused. You haven't invested in marketing and you aren't sure where to start and what to invest in first. With limited budget, you can't do everything all at once or invest in bunch of different tools at once. Or perhaps, you have invested in marketing and you know where your gap is. But you aren't sure how to effectively close the gap.

If you are experiencing the above, the answer is a framework. Use a framework to visualize your current and future state and what to prioritize.

The 6PM (6-Pillar Marketing) Framework is a blueprint for your business's marketing. It visually presents six key aspects of marketing:

  1. Establishing desired perception

  2. Attracting your target audience

  3. Engaging your attracted audience

  4. Delighting your engaged audience

  5. Growing with your delighted audience

  6. Analyzing your data and optimizing

The image above shows marketing activity examples that belong to each pillar. Here are blog posts that can help you utilize the 6PM (6-Pillar Marketing) Framework to simplify your marketing and get started.


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