Creating success for your small business might seem like climbing a tall mountain, but it’s not impossible. It’s hard, but the reward at the top is worth every stride on the trail and sometimes all you need is a good guide.
One of the hardest strides on your way to the top in your business is good marketing for whatever product or service you have. Specifically, how much do small businesses need to spend on marketing?
While word of mouth or networking might keep your business afloat in its infancy, you can’t stay like that for long. Either growth will stagnate or a competitor will beat you to market. So, let’s get to the basic question of:
Where and how much should you spend on marketing for your local business?
In this digital era, a website, SEO, social media, and PPC ads are the basics when it comes to marketing. The internet is the most obvious place to find a business now, so first we’ll focus on that. Once you have an online presence, then you to create a digital marketing strategy.
Although businesses still spend a few dollars on traditional advertising model— it serves as valuable complement to digital assets—more initial dollars are now invested in digital methods, which is an easier entry point into marketing for small businesses.
Small businesses should plan to spend 3% of total revenue on digital marketing. And if we go by the Small Business Association’s suggestion of 7%-8% of total revenue on all marketing expenditures, that’s almost half of your budget on digital. So digital marketing is essential, expensive, but worth every penny.
And what’s the overall average cost for small businesses? Use this formula and find out!
According to the Entrepreneur, you first need to calculate the range of spending, which is something between 10 and 12 percent of your projected annual gross sales. So, if you’re predicting around $1,000,000 sales for the year, then your marketing budget will be anything between $100,000 and $120,000, and so on—an average advertising costs for small business.
This is where it gets a bit complicated. Take those two figures and multiply it by the mark up on the average transaction in your business. A mark up is the gross profit above cost, as a percentage of value. If you’re spending $100 on each product, and sell it at $150, that’s a 33 percent increase (those extra $50 bucks).
Now, split the gross profits by cost. Taking the example above, your total earnings are $333,000, then divide it by $666,000. This leaves you with “0.5” on the calculator, or 50 percent. This means that your 33 percent margin represents a markup of 50 percent.
Then you multiply the markup percentage by $100,000 and $120,000, which gives you $50,000 and $60,000. From there, you subtract what you pay on a year in rent or other expenses leaving you with your final spending range on marketing.
Take your time and do thorough research on how you can do marketing and advertising for your business. If you’re a small business, working with a professional digital marketing agency is one of the best investments you can make to push your company toward success.