Every business, no matter how small, needs a promotional budget to:
- Attract customers
- Set itself apart from its competitors
- Bring long-term growth
The amount each business owner spends on marketing can vary depending on their goals, how much money their business brings in, type of business and the industry they’re in.
Businesses that sell to other businesses (B2B) should plan to spend between 2% and 5% of their annual revenue on marketing.
These factors put business owners in the challenging position of having to estimate, or guess, how much they need to spend on marketing. To a new business owner, marketing budgets can feel a bit abstract, and harder to commit to than other, more tangible expenses like equipment.
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What small business owners typically set aside for advertising
A 2019 BDC survey of more than 1,400 companies found that Canadian small businesses spend, on average, just over $30,000 a year on marketing. As the size of the businesses increased, so did the promotional budget:
- Businesses with 20 to 49 employees spent double what the smaller businesses did
- Companies with 50 or more employees spent over $100,000 per year
So how much is enough now?
Below we describe four methods to calculate the right marketing budget for your business. Remember, it’s an investment in your business and your future, so don’t shy away from the decisions in an attempt to save money.
4 ways to calculate your promotional budget
A marketing budget should be generous enough to allow you to invest in a variety of tactics to promote your business to potential customers across multiple channels (e.g. marketing, public relations).
There are a few ways to figure out what kind of promotional budget you need for your particular business.
- Calculate it as a percentage of your annual budget
- Choose a flat amount that feels comfortable based on experience
- Try to spend what your competitors are spending
Or you could simply review your goals, outline the tactics needed to achieve them, and add up the total cost of each of these efforts.
The percentage option
The best marketing budget for you will do as much as possible to help you achieve your goals but also allow you to manage your other expenses.
Most businesses will have to find a balance between:
- What they’d like to spend
- What’s actually affordable
- What else they need to cover for expenses in a year
If your business is brand new, you’re likely going to be spending more in the first few years to establish your awareness and a reputation.
If you haven’t had a promotional budget before, you may find it most comfortable to use averages from other businesses to get to a reasonable starting point.
This should give you a ballpark figure to work from as you consider other factors.
As mentioned earlier, B2B businesses should set aside between two and five percent of their annual revenue for marketing.
For companies that sell to consumers (B2C), the amount might be more generous, reaching nearly 10% of annual revenues instead, as these companies must use multiple channels.
So, to begin:
- Look at your forecasted annual revenue for the year ahead
- Decide if your business is B2B or B2C
- Calculate 2% to 5% or as much as 10% of the total annual income and set it aside for your promotional budget
That number is your tentative marketing budget.
You’ll want to be sure this estimated amount fits in your annual budget and will allow you to cover the rest of your fixed and planned expenses for the year. If it doesn’t, you may have to trim the number back a bit to a manageable flat amount this year and rework it for the next annual budget.
You may also want to do some research into your competitors and your industry to see how your planned spending compares to theirs.
Expenses to consider including in a marketing budget
Here are some of the marketing expenses that you might consider including in your budget, depending on whether you’re just starting out and who you sell to:
- Digital advertising
- Print and radio advertising
- Website development, maintenance and updating
- Graphic design and print costs for business cards and brochures
- Social media
- Public relations
- Events and trade shows
- Partnerships and collaborations
It’s essential to keep an eye on trends in digital advertising as you make plans for the future.
Related: How to identify your target market
Stay flexible and alert to opportunity
As you work to break this budget out into different categories, you may realize you have a few things you’d like to tackle that your estimated annual amount won’t be able to cover.
For instance, it may work as an annual budget, but in the first year, you’ll be developing a new website or launching an online store, incurring a higher one-time cost.
If you can find other funds to pull from to raise the marketing budget for that year, you can carry out your plan and also afford a more extensive project or fund a big launch if needed.
Measure and adjust over time
The real power comes in consistently measuring your marketing efforts to adjust your budget, funneling money to the efforts that turn out to be most effective.
Remember that tactics such as content marketing take time to show a return.
Think of it as a necessary investment in the success of your business and a way to ensure your business continues to grow and bring in new customers every year.
Use our tips to help make an educated guess
Every business owner will need to set aside a promotional budget in order to raise their company’s visibility among potential customers. The amount of money you need to spend can vary, but with a bit of research and calculation, you can decide what marketing budget will help you grow your business and keep your competitive edge.