Coming up with a sensible digital marketing budget can feel like a guessing game for small business owners, but it doesn’t have to be that way. 

By considering the following key factors, you can develop a digital marketing budget that aligns with your business goals, revenue, and competitive landscape. Here’s a list of practical steps and benchmarks to help you decide what makes sense for your business.

1. Percentage of Revenue

One of the simplest methods for determining a digital marketing budget is by using a percentage of your annual revenue. Here are some general guidelines to get you started:

• Average Benchmark: Small businesses typically allocate between 10-12% of total revenue to marketing. This gives you a basic starting point, but remember it is simply an average and you should tailor this percentage to your unique business needs.
• B2B vs. B2C: B2B companies tend to spend less since their target audiences are smaller and more niche. In contrast, B2C businesses often spend a higher percentage given the larger audience and the need for broad consumer awareness.
• Industry Variations: The industry you’re in can greatly influence marketing spend. Some industries are known for higher marketing investments due to intense competition, evolving customer demands, high regulation, or the need for consistent brand engagement.

So, why use a revenue-based approach? It’s a straightforward method that ensures your marketing efforts are proportional to your business size. But remember, these are just benchmarks; it’s essential to evaluate other factors to refine your budget.

2. Consider Your Business Stage and Growth Goals

Your business’s age and growth ambitions play a big role in determining your marketing budget.

• Startups and High-Growth Companies: If you’re in startup mode or aiming for aggressive growth, you’ll likely need to spend more on marketing—possibly up to 20% or higher. This allows you to establish brand awareness and capture market share quickly.
• Established Businesses: For mature businesses with steady revenue, a more conservative budget of 5-10% may suffice. At this stage, marketing often focuses on customer retention and re-engagement rather than rapid growth.

Aggressive growth goals require more investment. If you want to outpace competitors or expand into new markets, increasing your marketing budget can accelerate those efforts. 

3. Analyse the Competitive Landscape

The competitive environment also affects how much you should spend. Look at your competitors’ marketing budgets to get a sense of the spending level needed to maintain or grow market share in your industry.

Some tips for competitive analysis:

• Use Benchmarking Tools: Tools like SEMrush, Facebook’s Ads Library and LinkedIn’s insights can help you get an idea of competitors’ marketing spend. This information is especially useful if you’re in a saturated market and need to match or exceed competitors to stay visible.
• Select The Best Channels: Do some market research to find out the most effective digital marketing channels for your business and industry. That may be Google, Facebook, SEO, local marketing, content marketing or others.
• Be Realistic About Market Share: If competitors are heavily investing in marketing, you might need to step up your budget to compete effectively. Conversely, if you’re in a less competitive space, you may be able to achieve good results with a more modest budget.

The less you spend, the less you’ll be seen. Investing in marketing doesn’t just generate leads; it builds brand recognition, which is crucial for long-term growth.

4. Use Data-Driven Decision-Making

“Without data, you’re just another person with an opinion”.

Data-driven decisions are essential for optimising your marketing budget and demonstrating its impact. Set up analytics tools to track key performance indicators (KPIs) like customer acquisition cost (CAC), return on ad spend (ROAS), and customer lifetime value (CLTV).

Performance data such as ROAS helps you see which campaigns generate the most revenue for every dollar spent. This enables you to double down on high-performing strategies and scale back on underperforming ones.

5. Balance Short-Term and Long-Term Marketing Strategies

Successful marketing budgets find the best balance between immediate returns and  longer-term investments to ensure that your marketing budget works efficiently both now and in the future:

• Short-Term Tactics: These include paid ads, promotions, or seasonal campaigns that drive quick results. You can adjust these budgets in real-time based on performance, making them flexible for short-term goals.
• Long-Term Investments: Content marketing, SEO, and brand-building efforts fall into this category. These strategies may take longer to yield results but provide sustainable growth over time. For instance, investing in SEO can eventually reduce your reliance on paid ads, freeing up budget in the long run.

6. Regularly Review and Adjust Your Marketing Budget

A marketing budget should evolve as your business and market conditions change. Schedule a regular review (eg. quarterly) to decide whether any adjustments should be made:

• Seasonal Changes: Certain times of the year may demand increased spending, especially if you operate in retail or other seasonal industries.
• Campaign Performance: If a campaign is underperforming, don’t hesitate to reallocate funds to higher-performing strategies.
• Market Conditions: Economic shifts, new competitors, or changes in consumer behaviour may require you to adjust your budget. Stay agile to ensure your marketing spend aligns with current realities.

7. The Impact of Marketing Investment on Profitability and Market Share

Investing in marketing should be viewed as a pathway to growth. Research very clearly shows that companies with a consistent investment in marketing outperform those that don’t. With increased visibility and brand loyalty, you’re likely to see a boost in both market share and profitability.

Under-investing in marketing can cost more in the long run. A lack of visibility almost certainly leads to fewer sales, making it harder to grow or even to sustain current revenue levels.

Key Takeaways

Determining the right marketing budget for your small business boils down to these key points:

• Start with a percentage of revenue as a baseline (for many businesses that is 10%), then refine it based on your current financial situation, profit margins and growth goals
• Consider your industry benchmarks and competitor spending.
• Use data to track and optimise your budget for maximum ROI.
• Balance short-term wins with a longer-term plan.
• Review and adjust your budget regularly to stay responsive to market changes.

Remember, there’s no one-size-fits-all approach to setting a digital marketing budget. The right amount depends on your specific goals, industry, and competitive landscape. But by being thoughtful, flexible and data-driven, you can invest in marketing effectively to ensure your consistent growth for your small business.

Ready to make the most of your Digital Marketing Budget?

Get in contact with Sizzle Digital now to learn how we can help maximize your marketing spend. Our team of digital marketing experts will work closely with you to understand your business goals and then develop a custom marketing plan to help you grow.