You have budgeted for personnel, leases, materials… you are all set, right? It’s not that easy. You can have the greatest product in the world, but who will know about it, if you don’t market yourself and your business effectively? There are a number of things for which a small business must account financially speaking; marketing itself involves a whole set of tasks. Your first step should be creating a marketing budget for your small business. Makes sense, but, where do you start?
7 Tips to Create an Effective Marketing Budget
1. Cater to Your Audience
Social media is a valuable and inexpensive marketing tool, but it doesn’t reach all audiences. For example, if your product is something that is meant to benefit senior citizens, pouring your marketing budget into social media is not the best strategy. Create a well-developed marketing plan that reaches your target demographics effectively. This will not only enhance your business but will ensure that you are spending those marketing dollars wisely.
2. Track and Harvest the Data From Your Sales Process
You’ll find valuable information about your sales in your sales funnel. Your sales funnel refers to the buying process that companies lead customers through when purchasing products. Sales funnel is divided into steps, which may differ, depending upon the specific sales model. One common sales process is divided into seven phases, including:
- Awareness Phase – in which prospective consumers become aware of the existence of a solution.
- Interest Phase – in which consumers demonstrate an interest in a product by conducting product research.
- Evaluation Phase – in which consumers or prospective companies examine competitors’ solutions as they inch toward a final buying decision.
- Decision Phase – In which a final decision is reached and negotiation begins.
- Purchase Phase – in which goods or services are purchased.
- Reevaluation Phase – in B2B sales it’s common for sales to involve contracts that need to be renewed. As a customer becomes familiar with a product, and as a contract draws to a close, a customer will reevaluate their position and will decide whether or not to renew their contract.
- Repurchase Phase – in which a customer repurchases a product or service.
To ensure that you create the most effective marketing budget for your small business, you will need to take a good, hard look at your sales funnel and fully understand all its nuances. This is where you will track your small business’s revenue cycles: you can easily harvest this data from your CRM or marketing automation software. The specifics at which you want to be looking are:
- Number of site visits per month
- Number of leads you are generating per month
- The amount of those leads that convert to sales qualified leads (SQL’s)
- How much it costs to generate these SQL’s; consider factor like the cost of your website development, whether or not you are outsourcing content development, the time being spent by your marketing and/or sales personnel to build these relationships, Pay-per-Click, and so on.
- Number of leads that become opportunities
- The number of these opportunities that become deals
- Average value or revenue of a new deal
Being able to answer these questions, and having this data, will be invaluable as you move forward with creating a realistic and effective marketing budget for your small business. Too many small businesses overspend or underspend in certain areas, such as targeting specific demographics or customer-facing efforts: Having accurate data will allow you to better make informed decisions as you create your marketing budget.
3. Don’t Forget the Day-to-Day Costs
Knowing your operational costs is also key to creating your small business marketing plan. One important area to consider is whether or not your current staff has the bandwidth to take on additional marketing efforts. It’s perfectly okay if the answer to that question is “no”. After all, you may not have been considering the marketing efforts of your small business when you hired your current employees and set about delegating responsibilities. There is a chance that your staff, wanting to be team players and demonstrate to you their value, may insist that they can handle the added responsibility. This is where it will be your job, as an employer and as a small business owner, to honestly assess whether or not you are spreading your employees too thin. All good bosses want to nurture the professional development of their staff, but by piling too much on them, you could get the opposite effect: employees may become unable to continue devoting the necessary time and energy to their tasks. Additionally, an overworked employee becomes a disgruntled employee and no small business owner wants that! An overworked employee can derail even your most well-developed marketing plans with negative word of mouth.
To avoid such a situation you need to dig deep and weigh the pros and cons of hiring additional staff or outsourcing to a reputable marketing agency. This is when you will want to consider the Three C’s: capacity, competency, and cost. Competency is the required set of skills; capacity refers to the amount of output or productivity required, and cost involves how much you will spend and the return on that.
Regarding competency, let’s say that you need to shoot some television ads or video for your small business’s website. Is this something that you will be doing with enough regularity that it makes sense to hire staff and take on those added costs of employee benefits? Or, is this effort in response to a specific campaign? If it’s the latter, then outsourcing to a reputable marketing agency may be your best option. Yes, it will perhaps cost more up-front, but you will not be accruing the costs that are associated with hiring additional staff, such as benefits, etc. However, if you find yourself outsourcing too much, then it may be time to reevaluate and consider hiring additional staff. If still uncertain, this is yet another time to reach out to your network of small business owners or mentors and receive their input on whether they keep their marketing in-house or if it’s outsourced to an agency (or, perhaps a combination of the two).
In terms of knowing your operational costs, you will also want to consider the potential cost of your inaction. Is the market rapidly changing in such a way that you are unsure of who your target demographic is? Or, by not participating in a particular event, by not spending the money on a television spot, will you not be reaching potential customers?
It is a lot to consider and it may seem overwhelming. But if you are on top of your harvesting and tracking, you will be able to develop a small business marketing budget that is best for you, your business, and your needs.
4. Budget for Your Goals
As a small business owner, it’s safe to assume that you want your business to grow, so you have to feed it, much like a child. Do you only feed a child whatever is leftover, after you have eaten? No. So, don’t take that approach with your small business when creating your marketing budget, and don’t only devote whatever funds are left, after covering your operational costs. Generally, for a small business with a budget of $5 million or less, it’s customary to devote 7-8% of revenue to marketing efforts, splitting between brand development (website, promotional materials) and campaigns, such as events.
What are your goals for the next quarter? And for next year? To accomplish these goals, how many new customers will you need to bring in? How much product will you need to sell? What services will you need to provide? From there, what will it cost in terms of overhead to meet these goals? If you have been gathering the necessary data via whatever software program you use, setting these quarterly and annual goals will further guide you in developing your small business’s marketing budget.
5. Spend Money to Make Money
Do you or your children have student loans? When taking out those loans, did you see it as just another expense, or did you see it as an investment in your (or your child’s) future? Most likely, the latter. The money you spend on your marketing efforts should be viewed the same way, as an investment. Keep track of your small business’s return on investments (ROI) as you look at what you are spending on your marketing initiatives. If you have done your homework, you will be pleasantly surprised to see that the money you spent on your marketing efforts helped increase your revenue. This is an opportunity to change your perspective: rather than seeing marketing as a cost center, which many companies do, try to see it as a source of revenue.
6. Budget Different if You Are in the Planning or the Growth Stage
Determining whether your small business is at the planning stage or the growth stage will also help you create your marketing budget.
If you’re in growth mode, you’ll need to generate top-line revenue at a faster rate, so you might consider deeper investments in more of the quick-win marketing techniques.
Take a continuous approach to further developing your website, so it can be a central marketing hub rather than an online brochure. Ongoing development and maintenance could consume a significant part of your budget, but the rewards are well worth it.
If you’re in more of a planning mode, where steady growth is more welcomed than spikes in revenue, you’ll want to consider a longer-term marketing play through earned media. This includes generating and publishing great inbound content and eventually earning new business over time.
Be honest as to where you are, as it’s okay to acknowledge that you are in a planning mode. Even children going through growth spurts slow down from time to time.
7. Be Trendy, But Cautious
Understanding current and future trends can also help you with your small business marketing budget process. But don’t fall into the trap that many companies do, which is to react to the latest marketing trend without the proper research and validation that will ensure they reach the target demographic (remember the previous example: is social media the best way to reach an older population?). A solid marketing plan (and, therefore, a budget) should include both traditional approaches, such as television and print media, as well as digital media such as Facebook and Instagram. But, always consider your audience: who are you trying to target? to what will they most likely respond? The answer to those questions will help you better craft your message.
No two small businesses are alike, and therefore, no two small business marketing budgets will be alike. As your business grows and changes, your marketing efforts will, as well. But, whatever changes are occurring in your small business, don’t skimp on your marketing budget. Incorporate all aspects of marketing efforts, and stay on top of your data analytics. Be honest as to where you are, so that you can continue making the best marketing choices for yourself, your business, your employees, and your customers.