Small business owners should never overlook the importance of marketing. No matter how good your products or services are, people need to hear about them first, and marketing is the best way to spread the word and increase sales.

If you spend too little on marketing, no one will know that your products exist. Spend too much, and you can break the bank. You can also spend what little budget you have on the wrong kind of marketing. It’s a balancing act.

Two main things should be considered when setting a marketing budget:

  • The development or refinement of the brand and the channels used to promote the brand. These include logos, custom web design, videos, blogs, e-mail campaigns, brochures, ads, etc.
  • The ongoing expense of promoting and advertising your brand to your customer base and your prospects. (Search Engine Marketing, Search Engine Optimization, etc).

There are certain items that you must spend time and money. Some of which are:

  • Branding
  • Website
  • Social media
  • Advertising
  • Content
  • Events

Here are a few tips for crafting a budget and spending it wisely.

Percentage of Revenue: Most small businesses allocate between 7-12% of their total revenue to marketing (total revenue being all of the money generated through sales before expenses are taken out). One of the main advantages of this percentage approach is that the budget is not fixed. It will grow along with revenue, increasing your marketing presence as your business expands.

If your business is only barely covering costs, or operating at a loss, 7-12% may not be practical. However, marketing is required for growth, and it’s not always a bad idea to cut into already narrow margins to increase overall sales later.

Fixed budgets: A new business may have to be more careful with their money, so an alternative option is to use fixed budgets. In your first year, you may simply have to find an amount that you feel you can afford and stick to it.

For companies that have been in business for one to five years, using 12-20% percent of gross revenue or projected revenue on marketing is suggested. (Companies less than a year old, need to ramp up before spending marketing dollars.)

For companies that have been in business more than five years and have some market share/brand equity, allot 6-12% of your gross revenue or projected revenue.

Return on investment: As you execute marketing campaigns, you need to determine what worked and what didn’t. Return on Investment compares the gains from a strategy or campaign to its costs in percent form, and will show how you can efficiently spend your money in future marketing efforts.

Ultimately, it all comes down to planning and budget.