How Much Should a Small Business Spend on Marketing

How Much Should a Small Business Spend on Marketing

Small businesses play an integral role in economic growth and development. Countless politicians and leaders say that small business is the backbone of America and our economy. However we find these businesses often struggle to establish themselves due to a lack of visibility and a smaller budget that seems to hinder their growth.

But should your marketing budget hinder your growth as a small business? Not at all. Marketing is essential for the growth and success of small businesses. And with todays tools and strategies small businesses and organizations are in a better position than ever when it comes to small business marketing. But how much should a small business spend on marketing? Lets go over the details.

What is the Average Marketing Budget for Small Business

According to the SBA marketing budgets vary greatly depending on the business and often range between 2% to 20% of sales. Yet the SBA generally recommends small businesses with $5 million in revenue or less should spend at least 7-8% of their revenues on marketing. Fot a company with only $250,000 in sales that amounts to $1,666 a month for marketing. For most businesses that really is not a lot of money compared to your sales.

What if you are just starting your business? Forbes recommends starting with a $1,000 to $5,000 initial investment and depending on a variety of factors spending up to 20% of revenues towards marketing. But no less than $1,000 per month.

Factors to consider when setting a marketing budget

When trying to set up your marketing it is not always best to simply go off of the averge marketing budget for small business because each business is different. It is important to consider the nuances to your individual business. You also don’t want to cut yourself short and hinder your businesses growth. This is critical because ever successful business needs a good amount of investment.

Business size and type

Business size and type can greatly affect your marketing budget. The size is not just how much revenue you have but the number of employees you have and what resources you have at your immediate disposal. If you don’t have any human resources to fall back on you may need to spend more to invest in a marketing agency that can handle more of the workload for you.

If you are in a B2B (business to business) business then you may not need to spend as much as a B2C (direct to consumer) business. There are higher advertising costs and a variety of regulations that increase costs as well.

Industry & Competition

The industry itself will greatly affect the size of your marketing budget. For service based industries like Real Estate and Home Improvement you will likely face a greater amount of competition. The more competition you face the more you will have to invest in marketing.

Conversely if your industry is very new you may also have to pay more in marketing to bring awareness to your product and help consumers identify the need they may not have known they had. In both cases you will need to ensure you are investing enough into your brand awareness. People wont be interested your business if they are unaware your business exists.

Business goals

Your business goals also will play a role in the budget for a small business. The ambition of business owners usually is a primary factor in the scope of your marketing campaigns. If you are looking to grow rapidly then it will require significant investment. However if you are looking to just maintain then the services you require may be smaller in scope.

Your business goals will also have an impact on the changes in your budget from quarter to quarter. Some endeavors may require an upfront cost, like redesigning or launching a website. Other goals man require a permanent increase, like successfully releasing a new product line.

Target audience

Many small business owners forget how much your target audience affects your marketing campaigns. The group of people you are trying to reach often determins the difference between good marketing and bad marketing. Your audience will also greatly dictate which marketing channels you will use, and those have varying costs as well. Ir is important to fish where the fish are, so to speak. But this means if your fish have high tastes then the marketing costs associated with those may be higher as well.

READ: Small Business Marketing: A Quick Guide for Business Owners

Your ideal customer will also have a life cycle. How often will they need your product? How likely are they to try a substitute? And these questions will help determine how much you need to spend on acquiring and keeping your customers.

Strategies for setting a marketing budget for small businesses

It is common for business owners to want immediate results. Especialy for those with a management background you may be inclined to want to scrutinize every detail of your marketing efforts. There can be some pitfalls with that however when it comes to marketing strategy.

The Importance of Testing and Learning from Marketing Efforts

Testing is a critical part of any growth strategy. You must be fearless in your willingness to test new strategies and channels. This involves trying out different marketing strategies to determine which ones are the most effective. This can include different marketing channels, varied messaging, and alternate visuals. By testing different approaches, you can learn a lot about what works best for your particular audience and avoid costly mistakes.

Especially in todays digital world testing is critically important. Social media is heavily centered on testing. Not only will you be testing different channels like email marketing vs social media but you will need to test the content within each channel as well. This requires a great deal of analysis, which also comes at a cost. But will save big in the long run. So instead of investing a significant amount of money in a marketing campaign that may not work, businesses can test a small sample of their target market and tweak the campaign as needed to get even better results.

READ: Do I Need a Website if I Have a Facebook Business Page?

Setting a Budget Based on Revenue or Percentage vs. Budget per Campaign

When it comes to setting a setting a marketing budget for a small business there are two primary approaches: allocating a percentage of revenue or setting a specific budget per campaign. Each approach has its advantages and disadvantages, depending on the business goals and circumstances.

Revenue/Percentage Method

The revenue/percentage method involves setting aside a percentage of your overall gross revenue for marketing. This method will ensure that you have a consistent flow of funds available to continue promoting your brand. The percentage will vary depending on your industry, business goals, and target audience. This will require regular discipline on part of the business owner especially if your revenues fluctuate throughout the year. It is the temptation of many small business owners to cut marketing expenses if revenues dip.

The percentage method is often better for financial decision making since it is based on your current revenue. It also makes it a bit easier to project quarterly expenses and makes planning easier. This will allows you as a small business owner to set a predictable budget for a specific period, which is often a year. The percentage can be adjusted each year based on business performance, revenue growth, and priorities.

On the downside, the percentage method can be restrictive since it limits the amount of money spent for a time period. With this method it is important to have monthly or quarterly goals and consistent monitoring of results throughout the year. The part that is difficult is the temptation to pour more into marketing when revenues are high or to cut them back when revenues are low. Yet, if there is a unique opportunity to quickly gain market share, it may require additional funding beyond what was pre-determined for that period.

Per Campaign Method

The per campaign method sets a specific budget for each particular marketing campaign. The amount you will allocate will often be based on goals and objectives. This method has much more flexibility and control, with businesses having the ability to allocate funds according to the marketing challenges they face.

The per campaign method is often best suited when “big-ticket” marketing opportunities arise, such as a new product launch or a major promotion. The per campaign method has its appeal because it can prevent owners from spending more on marketing than necessary. However if you run numerous campaigns throughout the year and did not plan out the sequence of campaigns ahead of time the result could be a much higher than average marketing budget for small business with campaigns that have no synergy. This results in efforts being wasted, revenue being missed, and spending far more money than necessary.

If each campaign is not monitored and reported on accurately and overspending occurs then you business may have little or no budget for other initiatives. The results of each campaign may not see immediate results and the campaigns as a whole may have a cululative or compounding effect as well. This can make projecting even more difficult.


Overall, setting a small business marketing budget is not an easy thing to determine. There are pros and cons to the different approaches in setting a budget and many factors to consider. Every business is not identical so the average marketing budget for small business may not fit your needs. It’s important to consider your goals and objectives when deciding which strategy works best for you.

One of the primary things to remember is to ensure that all campaigns are tracked accurately so that you can make informed decisions about where your money should be spent in order to get maximum ROI from every dollar invested in your marketing efforts. Having a consistent reporting system to track your ROI is essential so that you can make sure your efforts are paying off. You want your efforts and changes made throughout the year to be based on facts. But don’t be afraid to invest in marketing; having an effective strategy can help increase sales and boost profits for your small business.

At 5020 Growth Solutions, we understand that setting a small business marketing budget is no easy task. That’s why our team of experienced professionals are here to help you create the perfect plan that meets your goals and objectives within your desired budget. We will guide you through every step of the process from understanding which type of strategy works best for your needs to tracking all campaigns accurately so you can make informed decisions about where to invest in order to maximize ROI. Contact us today and let us show you how we can help grow your business with smart and effective marketing solutions!

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