What is a good advertising budget for a small business?

Without a budget, businesses of all sizes may overspend or run into financial issues. And without sufficient funding for your advertising costs, you could struggle to attract customers you need to stay in business. This article will look at what is a reasonable budget for a small business to spend on advertising by looking at the following areas:

• Determine your total budget
• Allocating the budget
• Identify marketing goals
• Research competitors and past results
• Consider what strategies to use

First, you should determine how much you can afford to spend. You’ll need to look at your revenue (money made from sales) as well as your total expenses. For example, how much money can you afford to spend on advertising (which will become an expense) while still maintaining profit and positive cash flow?

Another way to determine a budget is to use a percentage of your revenue total. Larger businesses usually invest between 7-10% of their annual revenue in marketing. These companies may have established some brand recognition and have larger teams and potentially international presence. So, the larger businesses can spend less on marketing as their company is more recognisable. 

Smaller companies looking for fast growth might choose to spend up to 15-20% to kickstart their business venture, so they can attract new customers through advertising and create brand awareness.

Pull together your annual revenue figures and decide which percentage of your revenue feels right for your business and the stage of your business journey. This percentage of revenue then becomes your total advertising budget. 

A good rule of thumb is the 70-20-10 rule for allocating budget. It will determine the strategies you will spend your marketing budget on:

• 70% of your budget could be spent on the strategies you know work for you and help you reach your goals.
• 20% of the allocation could be invested in new strategies that you haven’t tried before to scale your business and identify new methods of reaching your target audiences.
• Setting aside the final 10% portion will allow you to jump on any new or emerging trends in marketing to stay ahead of your competitors. You’ll also have the flexibility to try the ‘cool new thing’ if it suits your company and adapt to new technologies.

Most consumers are digitally savvy, using search engines to discover everything from products and services to local business information. Therefore, businesses should consider digital marketing methods to keep up with these changing customer behaviours.

With customer behaviour in mind, it’s a good idea to reserve half of the total marketing budget (or more) for digital advertising. Underestimating such a crucial part of the marketing mix could cause problems in the future if you don’t have enough money in your budget to pursue new methods.

What do you want your marketing activities to achieve? For example, do you want to raise your business’ profile in your industry or focus on selling to make more money? Deciding what you want to achieve first will determine which channels you use to reach your goals. 

Here are some goals that a business of any size may want to pursue:

• Improve sales
• Increase brand awareness
• Target new customers
• Retain more existing customers
• Grow your share of the market
• Enter a new market
• Launch new products or services
• Build business pipeline
• Increase bottom line or profits

Your marketing activity can’t achieve everything at once, so select a few objectives to focus your resources on.

If you have done advertising before, what methods helped you achieve your goals and which methods didn’t work so effectively? For example, if you aimed to improve your sales and found that using social media advertising helped you sell more products, then use this method again. 

If you are running a brand new business and are unsure where to start, then first look to your competitors. What do they do well? For example, do you like how their social media looks or notice they have local radio adverts that are particularly catchy? Also, look at what they don’t do so well – you might see your competitors use content marketing, but their blogs are not highly informative. Noticing the negatives and the positives could show you where you can get an edge over your competition.

Try to find out where your competitors spend their digital budget. Are they on top of every search engine? They may have invested heavily in an SEO (search engine optimisation) or PPC (pay-per-click advertising) strategy. Find out what works for them and decide if you need to spend there, too.

To know where to spend your marketing budget, consider which of these channels will be most effective for your goals:

• SEO
• PPC
• Content marketing
• Email
• Social media
• Web design or CRO (conversion rate optimisation)
• Digital events or webinars
• Online PR
• Offline methods such as TV, local radio, flyers or business cards
• Listings in directories (both physical and digital listings)

Let’s say you want marketing to increase your brand awareness. You may choose to invest time and resources into online PR and social media strategies. These channels will build trust and familiarity amongst your current following and find new audiences online for your business.

Alternatively, if you are a local business, you might find offline and online marketing can work together. For example, let’s say you are a physiotherapist based in a specific area; you might leave business cards at gyms in your region, as well as using directory listings. You might also benefit from using content marketing to explain your work to capture people searching online about physiotherapy services.

Finally, consider what software you may need to support your marketing. These tools could be anything from Photoshop, a social media scheduler, or an SEO tool to help you monitor your results. Subscriptions can add up, so including these in your budget will avoid any surprise overspending. 

Countingup can help you manage your business’ finances, freeing up your time to run your business and create an effective advertising budget for your marketing campaigns.

Countingup is the business current account and accounting software in one app. It can provide real-time profit and loss statements, as well as tax estimates and expense categorisation. 

With instant invoicing and the ability to share your live data with your accountant, it saves thousands of business owners across the UK hours of time-consuming admin so that they can focus on creating a successful business. Find out more here.