This is a crucial aspect of your business strategy, directly impacting your ability to reach your target audience, build brand awareness, and drive sales. However, with limited resources and an array of marketing channels, it can be daunting.
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In this guide, we'll address SME owners' top five questions about setting the budget for their marketing activity. We'll delve into topics such as the ideal percentage of revenue to allocate to marketing, how to distribute your budget across different channels, the impact of seasonality on your marketing spend, how to measure the return on investment (ROI) of your marketing efforts and strategies for marketing on a tight budget.
Whether you're grappling with budget constraints, time limitations, or a lack of marketing expertise, these insights will help you navigate the complexities of budgeting for marketing as part of your small business administration.
So, let's dive into marketing budgeting for SMEs and demystify the process. But remember, setting your marketing budget is not a one-size-fits-all process. Still, with the proper knowledge and tools, you can create a budget that works for your unique business needs.
Here are the most popular questions we are asked on this subject;
Let's get started with the first.
As an SME owner, one of the most critical questions you'll face when planning your marketing strategy is, "What percentage of my revenue should I allocate to marketing?" The answer to this question is pivotal in shaping your business's growth trajectory and success.
The first thing to understand is that there's no one-size-fits-all answer. The percentage of revenue you should allocate to marketing can vary widely depending on several factors, including your industry, the size of your business, its growth stage, and your overall business goals.
However, as a general guideline, many experts suggest that SMEs allocate between 7-8% of their gross revenue to marketing if their annual sales are less than £5 million and their net profit margin is 10-12%. This percentage is often recommended as it balances investing enough to see tangible results and not overextending your budget.
This percentage might need to be higher for new businesses or those looking to grow aggressively or gain market share. You might need to allocate 12-20% of your gross revenue to marketing. This higher investment can help build brand recognition and a customer base more quickly.
However, these are just guidelines. It's crucial to consider your unique business circumstances when deciding how much to spend on marketing. For instance, if you're operating in a highly competitive industry or market, you may need to invest more in marketing to stand out.
Also, consider your business's growth stage. Start-ups or firms in the growth phase might need to invest more of their revenue into marketing to build brand awareness and establish a customer base. In contrast, more established businesses can allocate a smaller portion as they can leverage their existing customer base and brand recognition.
Another factor to consider is your business goals. If you aim for aggressive growth, you'll likely need to invest more in marketing. On the other hand, if you're focusing on steady, organic growth, you might be able to get by with a smaller marketing budget.
Remember, the goal of your marketing budget is to help generate a positive return on investment (ROI). Every pound you spend on marketing should bring in more revenue for your business. Therefore, it's essential to regularly review and adjust your marketing budget based on the results you're seeing. If a marketing strategy delivers a high ROI, it might be worth increasing your investment in that area. Conversely, suppose an approach is not providing the expected results. In that case, you may need to re-evaluate and adjust your budget.
In summary, determining the percentage of revenue to allocate to marketing is a strategic decision that should be based on your specific business circumstances and marketing goal. By carefully considering your industry, business size, growth stage, and business objectives, you can set a marketing budget that supports your business's growth and success. Remember, the key to developing your marketing budget as an SME is flexibility and regular review to ensure your investment drives the desired results.
As an SME owner, once you've determined the overall marketing budget, the next challenge is to decide how to distribute it across various channels, each with a different marketing cost. This is a critical step in ensuring practical marketing efforts yield the desired return on investment within your small business marketing budget.
Understanding your target audience is the first step in deciding how to divide your marketing budget.
Where do they spend their time? What media do they consume? What platforms do they use? The answers to these questions will guide you in choosing the proper marketing channels for your business.
For instance, if your target audience is young and tech-savvy, digital marketing channels like social media, search engine optimisation (SEO), and email marketing might be the most effective. On the other hand, if your target audience is older or less tech-savvy, traditional marketing channels like print advertising, direct mail, or even radio and television might be more suitable.
Once you've identified the most effective channels for reaching your target audience, you can allocate your budget for each marketing expense.
A common approach for marketing spending is to use the 70-20-10 rule. This rule suggests that you spend 70% of your budget on proven marketing tactics that you know will work for your potential customer, 20% on strategies that have shown some promise but need further testing, and 10% on experimental tactics that could potentially deliver a high return.
However, it's important to remember that these percentages are not set in stone. They should be adjusted based on the results of your marketing efforts. If a particular channel delivers a high return on investment, it might be worth increasing your investment in that area. Conversely, suppose a channel is not performing as expected. In that case, you may need to reduce your spending and redirect those funds to more effective channels.
Another factor to consider is the cost of each marketing channel. Some channels, like google ads or influencer marketing, can be expensive and eat marketing dollars up quickly. In contrast, others, like social media marketing or email marketing, can be inexpensive.
As a small business owner, you'll need to balance the potential return of each channel against its cost to ensure that you're getting the most bang for your buck.
Lastly, it's important to remember that your marketing budget should be flexible. Digital marketing is constantly changing, with new platforms and technologies always emerging. As an SME owner, you must be willing to adapt and adjust your budget to take advantage of these new opportunities.
In brief, dividing your marketing budget across different channels is a complex task that requires a deep understanding of your target audience, a clear view of your marketing goals, and a willingness to adapt and change as needed. By carefully considering these factors, you can create a marketing budget that maximises your return on investment and drives business growth. Remember, the key to setting your marketing budget as an SME is not just about how much you spend but also where you spend it.
As an SME owner, understanding the role of seasonality in your marketing strategy is crucial. The question, "Should I spend more on marketing during certain times of the year?" is one that many business owners grapple with. The answer largely depends on the nature of your business and the buying behaviour of your customers.
Suppose your business is seasonal, such as a garden centre or a holiday decorations shop. In that case, it makes sense to have a marketing plan which increases your marketing spend during the peak times of the year. For instance, a garden centre might allocate a more significant portion of its digital marketing budget in the spring to online marketing tactics like google adwords, or local seo, when people are more likely to think about gardening and searching online.
Similarly, a holiday decorations shop might increase its marketing spend in the lead-up to Christmas as it knows their added bump in spending will offset the higher customer acquisition cost.
On the other hand, if your business is not tied to a specific season, you might choose to distribute your marketing budget more evenly throughout the year. However, even non-seasonal companies can benefit from adjusting their marketing spend based on other factors, such as industry trends or critical events in the business calendar.
For example, run a B2B company. Your clients are more likely to purchase at the beginning of their financial year. Increasing your marketing spend during this period could be a beneficial marketing tactic to ensure your business is top of mind when clients are making their buying decisions.
Another factor to consider is your competitors' activities.
Suppose your competitors typically ramp up their marketing efforts to concentrate on inbound marketing during a specific period. In that case, you might do the same to ensure your business remains competitive. Alternatively, you might increase your marketing spend during a quieter period to exploit the reduced competition to find your next new customer.
It's also worth noting that some marketing channels may be more cost-effective at certain times of the year. For instance, advertising costs on social media platforms fluctuate based on demand so that you can get more for your money during off-peak times.
In conclusion, the decision to increase your marketing spend during certain times of the year should be based on carefully analysing your business's unique circumstances. By understanding your customer's buying behaviour, keeping an eye on industry trends, business news and competitor activities, and being mindful of fluctuations in advertising costs, you can make strategic decisions about when to ramp up your marketing efforts.
Remember, the key to setting your marketing budget as an SME is how much you spend and when you spend it. By taking a strategic approach to your marketing budget, you can ensure that your marketing spend is working hard to drive business growth all year round.
As an SME owner, one of the most critical aspects of setting your marketing budget is understanding how to measure your marketing efforts return on investment (ROI). This is crucial as it allows you to evaluate the effectiveness of your marketing strategies and make informed decisions about where to allocate your budget.
The first step in measuring ROI is to define your marketing objectives clearly. Are you looking to increase brand awareness, generate leads, boost sales, or improve customer retention? Once you've defined your objectives, you can identify the key performance indicators (KPIs) to help you measure your progress towards these goals.
For instance, if your objective is to increase brand awareness, your KPIs might include metrics like website traffic, social media followers, and brand mentions. If your business goal is to generate leads, your marketing team might track the number of form submissions on your website, new email subscribers, or downloads of your lead magnet.
Once you've identified your KPIs, you must set up systems to track these metrics. This could involve using a marketing tool like Google Analytics to track website traffic and conversions, social media analytics to monitor engagement and follower growth, and customer relationship management (CRM) systems to track sales and customer retention.
To calculate the ROI of your marketing efforts, you'll need to compare the cost of your marketing activities against the revenue they generate. The basic formula for calculating ROI is:
ROI = (Net Profit / Cost of Investment) x 100
For example, if you spend £1,000 on a marketing campaign and it generates £3,000 in sales, your net profit would be £2,000 (assuming there are no other costs associated with the sales). Therefore, your ROI would be (2000 / 1000) x 100 = 200%.
However, it's important to remember that not all marketing benefits can be directly tied to sales in small businesses. For instance, increased brand awareness or customer loyalty can also be valuable outcomes of your marketing efforts, even though they may take longer to result in increased revenue.
In conclusion, measuring the ROI of your marketing efforts is a crucial part of setting your marketing budget as an SME. By clearly defining your marketing objectives, identifying relevant KPIs, tracking your performance, and calculating your ROI, you can ensure that your marketing budget is being spent effectively and driving business growth. Remember, the goal of your marketing efforts should not just be to spend money but to invest it in strategies that deliver a positive return.
You may often operate with a limited marketing budget as an SME owner. While this can present challenges, you can still create effective marketing strategies that drive business growth. The key is to be strategic and creative with your resources.
Firstly, it's crucial to focus on the most cost-effective marketing strategies. Digital marketing channels, such as social media and email marketing, can often provide a high return on investment and are typically less expensive than traditional marketing channels like print or television advertising.
For instance, social media platforms like Facebook, Instagram, and LinkedIn offer a way to engage directly with your target audience, build brand awareness, and even drive sales, all with little to no cost. Similarly, email marketing allows you to reach your customers directly with personalised messages, promotions, and updates, and it's often cited as one of the marketing channels with the highest ROI.
Another cost-effective strategy is content marketing. Creating valuable, relevant content for your website and blog can attract and engage your target audience, improve your SEO, and position your business as an expert. While creating high-quality content does require time and effort, it can be a highly effective way to market your business on a budget.
If your marketing budget is limited, it's also worth considering partnerships or collaborations with local businesses. This could involve co-sponsoring an event, running a joint promotion, or promoting each other's businesses on social media. Not only can this help to stretch your marketing budget further, but it can also help to expand your reach and expose your business to new potential customers.
Finally, remember that marketing is an investment, not an expense. While it can be tempting to cut your marketing budget when funds are tight, it's important to remember that effective marketing is crucial for driving sales and growing your business. Therefore, try to maximise the return on your marketing investment rather than cutting your marketing budget. This might involve regularly reviewing and adjusting your marketing strategies based on their performance, focusing on the most cost-effective marketing channels, and always looking for ways to get more bang for your buck.
In conclusion, while operating with a limited marketing budget can be challenging, it's not impossible. By being strategic, creative, and focused on ROI, you can create effective marketing strategies that drive business growth, even on a shoestring budget. Remember, the key to setting your marketing budget as an SME is not just about how much you spend but also how wisely you spend it.
In conclusion, setting your marketing budget as an SME involves a strategic blend of understanding your business, knowing your audience, and making informed decisions based on data. From determining the percentage of revenue to allocate to marketing to deciding how to distribute your budget across various channels to understanding the role of seasonality, each aspect requires careful consideration.
Measuring your marketing efforts' return on investment (ROI) is crucial to ensure that your budget is being used effectively and driving business growth. Even with a limited budget, there are numerous strategies you can employ to maximise your marketing impact.
Remember, the goal of your marketing budget is not just to spend money but to invest it in strategies that deliver a positive return. This involves regularly reviewing and adjusting your marketing strategies based on their performance, focusing on the most cost-effective marketing channels, and always looking for ways to get more bang for your buck.
By strategically approaching your marketing budget, you can overcome the challenges of effectively reaching your target audience, building brand awareness, and managing your marketing efforts. This will help you to achieve your business goals and drive growth for your SME.
Remember, the key to setting your marketing budget as an SME is not just about how much you spend but also how wisely you spend it. With the proper knowledge and tools, you can create a budget for your unique business needs.
Local Marketing Made Easy is a full-service local marketing agency based in Greenwich, London. We can show you how a good marketing strategy can increase sales - ultimately putting more money in your pocket.
To see how we can help your business, call us on (0203) 303 0625 or book a callback request via the form below.
