Are you budgeting for growth?
80% of Small Businesses Do Not Formally Set a Regular Budget for Marketing
- 85% of small businesses fail. Coincidence?
Most small businesses just “kind of spend” some money on marketing when they realize, “Hey, it’s slow this month!” A lot of business owners often then ask themselves, can I afford to spend some money on marketing this month? They ask this in the very month or months when things are at their tightest.
Do You See the Irony?
Few small business owners consistently set aside a percentage of their revenue for marketing. Then ask themselves, “What is the smartest way for me to spend these marketing dollars to get the biggest return in new clients this quarter and next?”
Which Do You Do?
Which approach do you think is more likely to produce results?
If you set aside a monthly marketing budget, your thoughts will change from,
- “I can’t afford that.
- “That’s expensive!”
To
- “What is available for me to invest in this quarter?”
- “What is the best way to invest those dollars?”
The first way, your mind is focused on the cost of everything and you will inherently try to avoid doing marketing. The second way your mind will focus on the most efficient way to get results.
If You Set aside a Monthly Marketing Budget
You are likely to get into a positive spiral, your marketing budget will grow with your revenues. The more you spend on marketing, the more new customers you will get, the more new customers you get, the higher your revenue will be, the higher your revenue… and so on.
Be Smart, Create a Marketing Budget
What percentage of revenue is the right percentage for small businesses to invest in marketing? There is no absolute answer to this. Here however is a rough “rule of thumb” answer.
Between 10% – 20% of Revenue
If you are shocked by this, you are simply not, as a business, focused on growth.
This means that a small business generating $500k a year in revenue should have an annual marketing budget of between $50,000 to $100,000. That’s $4,167 to $7,692 per month to spend on marketing!
Now Ask Yourself These Questions:
#1 If you invested just 10% of your business’s revenues, every month on marketing for growth, what effect would that have on your business?
#2 If you made this investment consistently and effectively every month, meaning you focused on the most effective form of online marketing, what would that be?
#3 How many new customers do you want or need every month to grow your business?
#4 What is stopping you from doing this?
What Percentage is Right for Your Business?
The Lifestyle vs. Growth Tradeoff
It’s a tradeoff. Assuming you are living off your business, paying yourself a salary, then you may be trading lifestyle for growth. Or put another way, you could be trading lack of growth for today’s lifestyle. Our advice is to pick one, you can rarely have both.
Gross Profit Percentage
Another major factor in determining your business’s marketing budget will be the amount of profit you make on every sale. If each sale is highly profitable with gross profits in excess of 50% then it will be much easier to allocate a larger percentage of revenue to marketing for growth.
Another rule of thumb, simply double the percentages if we are talking about gross profits.
Between 20% – 40% of Gross Profits
In this case, a small business generating $500k a year in revenue with a gross profit of 20% should have a marketing budget of at least $20,000.
That’s Still $1,667 per Month to Invest on Marketing!
Ready to get going? Kick off a FREE phone consultation today and we will ask you about your business and make a results-based budget suggestion.
