How to create a marketing budget for your small business

All businesses need effective marketing programs to attract and retain customers in order to survive and thrive, but unfortunately, many small companies cannot afford the high-cost advertising methods used by their more established competitors with greater revenue and cashflow. This makes it even more difficult for small business owners to compete profitably in the same niche with these established companies and that is one of the reasons statistics show that a lot of small businesses do not survive beyond their first year.

This does not mean however, that small business owners should be left wringing their hands in dismay, as there are lots of creative and inexpensive ways to market to their target audience still. For instance, networking, canvassing, maintaining high visibility and building relationships to attract customers are still tried and tested effective ways of growing your business as a startup. Subtle marketing pitches are made in everyday activities – when you attend professional meetings, have lunch with friends, talk at trade show booths, and just being out there in your community. However, relying solely on these methods can limit your company’s growth eventually as the methods are limited to your own personal interactions, and as a human, you have limited time and energy to perform these on full speed for years and years on end.

So, since businesses can’t survive without customers and it is very hard to get customers without advertising, creating a marketing plan and setting a marketing budget becomes crucial.

Without effective and consistent marketing, a business will run out of customers, and eventually out of revenue – leading to the collapse of that business. But that being said, as a small business owner without a lot of cash, the following steps will help you set up a marketing budget that will be effective and still be manageable within your tight budget.

Step 1: Scope out the competition

A clear understanding of your niche is of the utmost importance when it comes to setting a marketing budget for your small business. Find out the major players in your industry and what advertising methods they use – traditional or digital marketing – and what marketing platforms they use. Keep track of your top competitors and study their marketing campaigns.

Step 2: Analyse Your Sales Funnel

(This step is for businesses that are already in business and have existing customers. You can skip to step 3 if you’re a startup)

 A sales funnel is the marketing term used to describe the several steps your potential customer takes in order to purchase your product or service. Analysing your sales funnel helps you understand what potential customers are thinking and doing at each stage of the purchasing journey. These insights will allow you to invest in the right marketing activities and channels, as well as create the appropriate message during each stage to help you turn more prospects into paying customers.

Once you have completed this analysis, prioritize your spending on what works best for you. This will make you more competitive within a shorter time frame.

Step 3: Define your goals

Your marketing goals are a key element of your overall strategic goals and vision for growth. Before preparing your marketing budget, you need to define your goals for the coming year or period.

To set your goals, you need to answer the following questions:

1.  How much revenue do I need? (Per annum? Per month? Per week?)

 2.  How many sales do I need to make my revenue goal? You can arrive at this figure by dividing your target revenue by your selling price. For instance, I want to generate $100,000 every month; and my product or service costs $500 per unit. I will therefore need $100,000/$500 sales per month = 200 sales per month.

 3.  How many leads do I need to generate the right number of sales?

• As a startup, you can research the leads conversion rate in your industry.
• But if you are unable to do the research, you can use an estimate and then finetune this as you start getting leads. For example, you can estimate that out of 100 leads, 30% will go through your sales funnel successfully and convert to sales. So, we will have 30 sales out of every 100 leads.
• Using this analogy, let’s go back to No. 2 – we need 200 sales per month; how many leads do we need to have every month? That will be 200/0.3 = ~ 667. That means we will need ~667 leads every month in order to generate 200 sales monthly.
• As you start generating leads, make sure you track your leads conversion rate so you can have a very close real estimate as your business grows.

 4.  How would I go about getting leads? Through:

a.   Paid ads?

b.   Email marketing?

c.   Social media marketing?

Determine what works best for your product and services and don’t forget to use the information in Step 1 in arriving at the best strategies here.

 5.  How much do I need to spend to achieve my revenue target?

• Based on your answers in No. 4, allocate a budget to your lead generation. For instance, you could decide to run ads on FaceBook and Instagram and spend $5/day each month.
• Or you could opt for growing your email list so you can nurture your leads through email marketing. Then you would think of how much you would need to grow your email list using lead magnets and opt-in pages.
• You could further decide to go for social media marketing. Then, you would need to consider the cost of a scheduler to ensure your posts are consistent every day.
• You could use one or more methods to generate leads. Just make sure the option(s) you choose are strategies you can handle very by yourself or by your in-house team if you have one. Otherwise, we highly recommend you outsource this function to a professional marketing agency. You can talk to us if you require such assistance, and we’ll help you set up and running without stress in no time.

 6.  What are my Key Performance Indicators (KPIs)?

In spending money, you need to determine the Return on Investment (ROI) and setting KPIs help you determine that. You can track your KPIs using Google Analytics and call tracking or even simple spreadsheets to assess the effectiveness of your marketing activities. Your KPIs are the metrics you want to measure to determine the success of your marketing strategy, and these may include:

a.   The number of new customers you expect to see.

b.   Your customer retention rate.

c.   The percentage at which your leads convert. If you’re just starting, research typical sales conversion rates in your niche to get a realistic target.

Other metrics you may want to measure may include:

• Average Cost Per Lead. Your cost per lead (CPL) is an indication of how much marketing spend is needed to gain a new lead and can be calculated by dividing the total amount spent on marketing by the number of leads generated. For example, if you spend $100,000 on marketing and generate 1,000 leads, your CPL is $100 per lead.
• Average Conversion Rate. The formula for your conversion rate is the number of sales divided by the number of leads generated. This same formula can also be used to calculate your conversion rate for each marketing channel you use, just like the cost per lead. For example, if you generate 1,000 new leads, but only 50 of those become customers, then your average conversion rate is 5% (that is, 50/1000).

Step 4: Determine your final conversion costs:

Once you know how many leads will be required to achieve your goal, you can go back to your CPL calculation to determine what your final marketing budget should be. For instance, let’s assume you need 1,000 new leads and your average cost to generate each lead is $100. Now simply multiply the two numbers together to arrive at your final marketing budget. So: 1,000 x $100 = $100,000. That means, to get 100 new customers, you should plan to spend at least $100,000 on marketing.

Step 5: List your operational costs

Create a spreadsheet or template with all your current or anticipated operational costs such as web hosting, sales tax, professional fees, content outsourcing fees and whatever else you need to run your business.

Step 6: Determine your budget

Now that you have your revenue and costs, write out your budget using your accounting software or simple Excel spreadsheet. Be flexible and pay constant attention to your marketing activities and KPIs. Don’t forget to factor in special events and seasonality (such as summer holidays, national and cultural holidays, religious events and more). As a rule of thumb, you can adopt the 70-20-10 rule:

• Spend 70% of time and money on “now” - strategies you know work well for your business.
• Spend 20% of time and money on “next” - strategies that are new to your business.
• Spend 10% of time and money on “new”- these are the unknowns of the digital marketing world, like emerging technology or experimental strategies.  

Remember, expensive marketing is any marketing that doesn’t work.

Step 7: Revisit your plans

Investing in yourself and your client base for long-term success is worth it. Look at what’s truly working and invest more time and money into that. Keep testing & measuring your performance for each channel and be laser-focused on the two main statistics that impact your bottom line: cost per lead and conversion rate. This will save you money on marketing and still boost your profits. Then, you can start reinvesting more on proven marketing methods. Overall, this will result in huge returns over time and your brand will continue to grow.

Conclusion

You can’t build a marketing plan without first having a marketing budget in place. Note that marketing doesn’t have to be expensive in order to be effective, but it has to be effective in order to be worth it. Recognize that the original marketing budget you created is flexible and can be adjusted as necessary. Remind yourself of your goals and evaluate your performance throughout the year or budget period. Regardless of whether you’re just starting out or not, creating a marketing budget for your small business doesn’t have to feel overwhelming. And a tight budget shouldn’t stop you either! Get specific about your marketing budget and you will feel more confident about where your money is going.

Oak Marketing & Brand Management provides the expertise of a full marketing team for your business without the need to hire more staff. Learn more about our services at www.oakmarketingqa.com

Tolu Olajide

Founder, Oak Marketing & Brand Management