How much should I spend on small business marketing?
April 11, 2019
In this post:
- How much should a small business dedicate to its marketing budget?
- Tips for leveraging existing customers to stretch your dollars
- The order of operations for maximizing marketing spend at a small business
How much should small businesses spend on marketing? First of all, let’s address the elephant in the room: do you actually NEED to spend money on marketing for your small business?
The answer is an unequivocal yes. All businesses—including small, local ones—need to have a dedicated marketing budget and a solid marketing plan.
Why? Well, consider this little tidbit: Walmart spent $3 billion on marketing last year, and Amazon spent $10 billion. That’s billions, with a “b!”
Make no mistake, these giant, multinational corporations and many others like them are working and spending their hardest trying to win even more of your local customers.
And it’s working. For example, did you know that Amazon (of all places) is now the #1 US retailer of auto parts? And they’re going after every other business category that used to be exclusively reserved for local commerce, including groceries. And we all know what Walmart has already done to the local corner grocery store.
The good news is, there’s a growing “go local” movement that is reminding people that small, local businesses offer the personalized service and unique customer experience that mega-corporations simply can’t match, and a modest expenditure on the right marketing efforts can be very effective for Main Street shops and restaurants.
So, how much should small businesses spend on marketing?
We recommend that most small businesses put 7-8% of their gross revenue toward marketing. This aligns with the U.S. Small Business Administration’s counsel.
Now, if local competition in your business category is low, you might be able to squeak by with a 3-5% marketing spend. On the other hand, if competition is intense in your area, you might want to spend a little more, up to 10-12%. But around 8% seems to be the sweet spot.
If you’re like most of the 150,000 small business clients Womply serves in every corner of America, even 7-8% of your gross revenue probably sounds like a lot to you. We understand. You got your business where it is by pinching every penny so hard that Abe Lincoln’s face is imprinted in your thumb.
Frugality is laudable, unless it actually costs you money in the end. Consider that the average small business spends a full 10% of their gross on marketing, while the typical large company dedicates 13%.
What’s more, Deloitte and Duke University found that many businesses spend up to 50% of their gross revenue on marketing! Ouch.
Now that recommended 7-8% spend doesn’t sound so bad, right?
Another silver lining is that small businesses don’t have to spend anywhere near as much as large companies. And, dumping more money into marketing doesn’t necessarily produce more or better results.
Leverage existing customers to stretch your marketing budget
We reached out to Carol Roth – creator of the Future File legacy planning system, former investment banker, small business advocate and host of The Roth Effect – for her take on how to make your marketing dollars go further. She said to focus on your existing customers as a source of new ones.
“If you have a tight budget, there are a number of marketing tactics you can implement to stretch your dollar. Your best bet is to leverage your existing customers’ network. If someone loves your business, the chances are that some of their friends and family will too.
Consider creative ways to incentivize those customers to spread the word for you, such as an online contest where they post about your business or respond to a creative query on social media for a chance at a prize.
Or offer your customer a special discount for them and a friend if they come into the location together or attend one of your special events. You can even create a referral program where a customer can earn special incentives by spreading the word.”
Do this before you spend any money on marketing
Dedicating a portion of your budget to marketing can be very hard at first. So let’s make sure that marketing spend has the best chance of being effective.
Before you spend any money on marketing, it’s vitally important that you first get control of your business’s online presence, claim your business’s pages on all of the major review websites, and start engaging customers by responding (politely) to all reviews.
For owners of small, local shops, this might sound like a treatise on the importance of mukluks in the Sahara, but trust us, if you don’t start here, any marketing spend you make will actually be sending your potential customers somewhere else.
Why? Because, although “word of mouth” is still the top way customers find small, local businesses, over the past decade that conversation has moved online to review sites like Yelp, Google My Business, TripAdvisor, and Facebook.
In fact 97% of your customers search online for local businesses. Think about that.
Even if someone does get a personal recommendation to visit your business, they will almost always check your online reviews before they decide to come in and spend with you. 88% of consumers trust online reviews as much as personal recommendations from family and friends!
Even if they are standing on the sidewalk in front of your store checking their smart phones, they won’t enter and buy unless they like what they find online.
So, let’s say you spend $500 every month on advertising but you haven’t first claimed your business profile on the major review sites or taken control of your online presence.
If you start spending marketing money now, you’re essentially promoting a business that either 1) people can’t find and research online because you don’t have a solid digital footprint, or 2) has a low review rating or incorrect info listed on these critical review sites. In either case, you’re throwing your money away.
Be sure to read our articles on claiming your business listings and owning your online presence for more details. Or jump to our specific articles: how to take control of your online business reputation, how to claim your business listing on TripAdvisor, how to claim your business on Yelp, how to claim your Google My Business listing, and how to respond to online reviews.
Where should I spend my marketing budget?
Once you’ve taken the steps above (which don’t cost you anything more than your time), you’re finally ready to spend some of your marketing budget.
Rather than wasting your limited marketing budget on outdated and ineffectual methods, you should invest in the marketing approach that has been shown to be by far the most efficient, powerful, and effective for small businesses: email marketing.
We’ll let you read the full story on small business email marketing at your leisure, but the bottom line is that email marketing has the highest return on investment of any other marketing approach, with an astounding 42 to 1 ratio. This means that for every one dollar you spend, email marketing brings in $42 on average. Nothing else even comes close.
For deeper dives and more details on the steps we discuss above, you really should read our articles on the biggest bang for your small business marketing buck, 4 crucial steps to building a small business marketing plan, how to get more reviews.
Consider loyalty marketing software
While managing your online reputation and sending email marketing campaigns can be done for free (if you consider your investment of time “free”), once you get some momentum it can feel like a full-time job. This is where reputation management software and email marketing software can be a big help.
With Womply, you can read and respond to all of your online reviews in one place, with one login. You get notified of every new review, and Womply’s software encourages any less-than-happy customers to give you feedback directly, and your happy customers to post their reviews on popular review sites. This means you get chosen by more customers looking for businesses like yours.
Additionally, Womply’s software automates many of the key email marketing tasks, and even “pre-populates” your customer list, allowing you to send timely reminders, promotions, and offers, even if you don’t have customers’ contact information. So you get more repeat business with just a few clicks.
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