How to Develop a Marketing Budget for Your Small Business Should you invest in marketing? The short answer is yes. Here's why, plus a step-by-step guide to building an apt marketing budget that bolsters growth.

Whether your business is a new kid on the block or has been around for a decade, you know you need consistent marketing to reach and resonate with your target customers. Without marketing, you cannot hope to hit optimal sales figures or grow as a brand.

But how much should you ideally spend on it? And how do you set a budget for marketing based on your current revenue run rate?

That's where developing a marketing budget helps. Essentially, it outlines the amount of money you intend to invest in marketing efforts quarterly or annually. It includes all expenses ranging from hiring freelancers to paying for marketing software and running social media ads.

An effective marketing budget helps align your marketing dollars with your short- and long-term business goals and craft strategic marketing campaigns.

Here's how to create a marketing budget tailored to your business goals. But first, let's quickly understand the importance of marketing and setting a dedicated budget.

Related: How to Determine the Perfect Marketing Budget for Your Company

Why your marketing budget matters

To state the obvious: Regardless of what your business offering is — and no matter how good it is — the competition is fierce in every niche. You may have the finest product or service on offer but will still struggle to stand out and attract clients and new customers if you don't allocate a budget for promoting your business.

Also, while traditional advertising (such as flyers, billboards, etc.) may still work well if you're a local or brick-and-mortar small business, in this digital age, focusing the bulk of your marketing spend on online marketing tactics (such as Google ads, paid media, etc.) is indispensable.

Simply put, developing a smart marketing budget will set your business on the right path for growth, helping build awareness and credibility for your brand. The question is: How much should you spend on the marketing budget?

Marketing investments vary widely based on industry, location and business goals, so the answer to this question isn't a straightforward one.

That being said, according to the U.S. Small Business Administration, small businesses with revenues less than $5 million should allocate 7-8% of their revenues to marketing.

According to the February 2022 CMO Survey, B2B product companies spend an average of 9.4% of their revenue on marketing, while B2B service companies spend around 10%. B2C product companies and B2C services spend an average of 14.2% and 8.7%, respectively of their revenue on marketing.

Also, for the smallest of small businesses — solopreneurs — Dave Madrid, a self-employed developer who spends $5,000 per year on marketing his services, suggests 15% or more is a reasonable amount of gross revenue for new businesses to allocate to marketing expenditures.

Related: It's Easy to Cut Your Marketing Budget in a Rocky Economy — But That's a Bad Idea. Here's How to Save Money on Your PR Strategy.

4 steps to develop a smart marketing budget

Without further ado, here are the steps you need to take to build a smart marketing budget as a small business owner.

1. Identify your marketing goals

The overarching purpose behind marketing is to increase brand awareness, authority, and credibility in your niche. But what exactly do you wish to achieve with your marketing efforts?

Set specific, measurable, achievable, relevant and time-bound (SMART) goals, such as:

• Boost organic search engine traffic for your website by 30% within six months.
• Get 3,000 free trial sign-ups or demo requests within three months.
• Build an email newsletter list of 500+ subscribers within four months.
• Acquire 1,000 new Instagram followers within two months.

Related: Use These 5 Steps to Create a Marketing Plan

2. Develop a marketing strategy first

To avoid spending your marketing budget on things that don't move the needle, it's a good idea to first devise a marketing strategy based on the marketing goals determined in the first step.

The budget then becomes a piece of the overall marketing plan, and you'll find it easier to understand how your marketing dollars would be distributed across various channels.

3. Figure out your marketing channels

It's easy to spread yourself too thin and put your marketing dollars into a myriad of marketing efforts, hoping for a few to work.

Instead, based on your goals, it's better to double down on selecting a few marketing channels such as:

• Digital marketing: This encompasses all online marketing strategies, such as pay-per-click (PPC) ads, social media ads, email marketing and search engine optimization (SEO).
• Inbound marketing: This refers to organic, non-intrusive channels meant to attract people to check out your business, such as SEO, social media and content marketing (blogs, YouTube videos, eBooks, etc.). The focus is on creating valuable content.
• Outbound marketing: This refers to initiating a conversation with your customers by explicitly promoting your business via display ads, PPC ads, SMS, cold calling and traditional advertising methods.
• Brand awareness campaigns: These campaigns are all getting your business in front of potential customers and primarily include content marketing (blogs, videos, etc.), social media and public relations.

Related: Why Every Marketing Channel Won't Work for Your Business

4. Measure ROI and track your marketing budget

To quote Peter Drucker, "If you can't measure it, you can't manage it."

Tracking your marketing metrics helps you avoid overspending on marketing strategies that aren't effective. It's how you measure your return on investment (ROI) — the most important aspect of your marketing budget.

So, based on your marketing goals set initially, keep an eye on your ROI monthly to ensure you're making the most of your budget.

Time to plan your budget

Marketing is a must for businesses big and small, especially the latter. Developing a marketing budget starts with setting crystal clear goals and building out your marketing strategy.

Keep monitoring which tactics and campaigns are driving the highest ROI and which marketing channels aren't worthwhile for your business.

Finally, be sure to keep revisiting your marketing budget every three to six months to continually refine your strategy and improve your marketing ROI.