6 Steps to Developing a Marketing Budget for a Small Business

Building a successful business almost always involves successfully marketing your product, service, or yourself.

Far too many businesses underinvest in their customer-facing efforts, or instead spend too much trying to reach a specific target audience. For example, if your target audience is older consumers, marketing dollars spent on social media campaigns may not be effective in reaching them.

One of the best ways to ensure your marketing money is well spent is to develop a comprehensive marketing strategy and come up with a solid marketing plan. Following a well-defined plan will help ensure that you are spending your marketing funds wisely and appropriately.

A marketing plan should include everything from understanding your target market and your competitive position in that market, to how you intend to reach that market (your tactics) and to differentiate yourself from your competitors in order to make a sale.

Your small business marketing budget is an essential part of your marketing plan. It will outline the costs of how you are going to achieve your marketing goals within a certain time frame.

Here are the six steps to developing a marketing budget as part of your marketing plan:

1. Know your sales funnel

Building an effective marketing budget requires a thorough analysis of your sales funnel, where you’ll track results throughout the revenue cycle, from prospect to customer. Harvesting this data from your marketing automation or CRM software makes this process relatively simple:

• How many site visits do you have per month?
• How many leads do you generate per month?
• How many leads are converted into sales qualified leads (SQL)?
• What is the cost of generating these SQLs? (e.g. website development, outsourced content creation, Pay-Per-Click, time spent by marketing and/or sales nurturing those leads, etc.)
• How many leads turn into opportunities?
• How many of these opportunities close as new deals?
• What is the typical value/revenue of a new transaction?

RELATED: What is your digital marketing budget this year?

2. Know your operational costs

Next, you will need to understand your operational costs:

• How much time and labor would it cost to provide contacts?
• Does your internal staff have the bandwidth for this job, or will you need additional staffing and employee benefits costs?
• How much would it cost if you hired a referral agency? (Initial costs will be higher than doing it in-house, but the results and return on investment might justify the extra expense.)
• What are the potential costs of your inaction? (Be sure to calculate rapid market changes and whether you can afford to shrink your market share in the face of current and future competition.)

3. Set your marketing budget based on business goals

Determine your business goals by asking yourself the following questions:

• What are your business goals for the quarter?
• What are your business goals for the year? How about three years?
• How many of these contacts need to be delivered to your sales team, based on their close rates, to have a sufficient revenue impact to meet these goals?

It’s common for small businesses with revenues under $5 million to allocate 7-8% of their revenue to marketing, splitting it between brand development costs such as websites, blogs, sales materials and promotional costs, as well as campaigns, advertising and events. Never base your marketing budget simply on what’s left over after covering all other expenses.

4. Position marketing as an investment, not a cost

Most often, marketing budgets come from the top of the organization where marketing teams are seen as cost centers and the marketing budget is viewed as an expense.

Based on this thinking, organizations will look at last year’s marketing spend and decide where they want to spend more or less. Instead, your marketing budget should be treated as an investment, something that will yield a quantifiable and verifiable return on investment over time.

5. Consider your stage of growth

Defining your marketing budget will also be influenced by whether your organization is in growth mode or planning mode.

Mode of growth. If you’re in growth mode, you’ll need to generate higher revenue at a faster rate, so you might want to consider bigger investments in more quick-win marketing techniques.

Take an iterative approach to further developing your website, so your website can become a central marketing hub rather than an online brochure. Iterative development and maintenance could eat up a significant chunk of your budget, but the rewards are worth it.

Planning method. If you’re more in a planning mode, where steady growth is valued more than spikes in revenue, you’ll want to consider a longer-term marketing game through earned media. This includes generating and publishing great inbound content and eventually getting new business over time.

6. Understand current and future trends

An understanding of current and future marketing trends can also help you navigate the budgeting process.

When establishing a marketing budget, it is important for marketers to adopt and apply different technologies to their marketing stack to keep pace with industry changes. If you use email in your marketing strategy, take advantage of features like contact insights, email tracking, and email scheduling. (To verify 6 Email Marketing Tips That Will Really Make a Difference for helpful tips.)

Often businesses react to the latest “marketing” idea without validation or research that it will successfully reach their target market. A marketing budget should include traditional market approaches as well as the emerging social media market. Focus on your audience, what form of communication they are likely to respond to, and what message you are sending them.

Read all of Articles by Michael Evans on AllBusiness.com.