Entrepreneurs often wonder how much they should budget for marketing. Unfortunately there are no convenient formulas to figure this out; for the most part it depends on:
- What kind of activities you plan to undertake
- The minimum investment needed to move the dial
- What the competition is doing
This post will touch on these three ideas – I hope they help you put together the best possible budget for your small business.
Marketing Activities: Time vs. Money
Some marketing activities are labor-intensive and some are dollar-intensive. For instance, social media marketing is incredibly laborintensive, but requires very little cash outlay. In contrast, pay-per-click (PPC) advertising cannot be undertaken without a monthly ad spend of a few hundred dollars to several thousand, over and above whatever campaign management fees apply.
Many entrepreneurs gravitate to social media, content marketing and blogging because they are low cost – but are they? Whatever you calculate the value of your time to be $50/hour, $100/hour, $500/hour – these “free” marketing activities can become an enormous productivity drain, keeping you from taking on other business-building tasks that hold greater potential.
If you spend 20 hours a month on these activities, that’s $1000/month, if you value your time at $50/hour. After you make this calculation for your situation, consider:
- What kind of return am I getting on this $1000/month (or whatever) investment?
- If I stopped these activities, what could I do instead to generate a greater return for my business?
- If I outsourced $1000/month (or whatever) on other marketing activities such as PPC, could I obtain a better return?
The answers will be different for every business, but if you’re not asking them on a regular basis, you’re sure to overspend, either in terms of time or money.
Moving the Dial
Our agency turns down PPC and SEO engagements all the time because the client (and this could be either a small or large firm) is unwilling or unable to make an investment big enough to move the dial, i.e., to generate a return on investment.
Let’s consider SEO, a marketing activity that just about every business thinks it needs to spend money on. While SEO is indeed terrific for many firms, the economics aren’t always there.
One obstacle is low search volume. If you sell within a small geographic market, or sell a highly specialized product with low demand, you may not be able to generate a critical mass of organic traffic no matter how much you spend on SEO. What’s the point of achieving #1 ranking on all of your strategic keywords if it only adds up to a handful of visitors every month and a handful of leads a year?
Two other obstacles are low order volume and low lifetime customer value. If your profit margin on a transaction is only a few dollars, it may cost more to generate the lead via SEO than the sale is worth. And, if it’s a one-time or infrequent sale, the economics become even less attractive.
Most situations, however, are not either/or; they are only a matter of degree. The key question for SEO and PPC is how much do I have to spend to generate enough traffic to generate enough business? The same thought process applies to those “free” marketing activities: how many blog posts or tweets or Facebook posts do I need to write to generate enough brand awareness/traffic to generate enough business?
The Competitive Context
The more competitors who are blogging, the more you’ll have to blog in order to get noticed. Same goes for SEO or PPC: If you are trying to get noticed for highly competitive keywords, the cost goes up – sometimes way, way up. If you’re in a situation like this, rather than tak on an excessive budgetary commitment, consider a contrarian marketing strategy. For instance, if everybody in your niche is content marketing like crazy, perhaps a modest spend on radio advertising, where you’re all alone, will produce great results.
Just remember There are only two reasons why firms engage in a given marketing activity: either because it works or because everybody else is doing it. All too often, firms dive in for the latter reason, and never bother to evaluate whether it’s working. A serious budgeting process should focus on the activity’s value, not its popularity.
Over to You
- How did you arrive at the budget for your business?
- What small business budgeting tips can you share?
Brad Shorr is the Director of B2B Marketing for Straight North, an Internet marketing agency headquartered in Chicago. With many years of entrepreneurial experience, he writes frequently on business strategy and content marketing topics.