Selling yourself is a part of every business, and marketing is the way it’s done at scale. But how much should a small business spend on marketing?
Like any question worth asking, the answer depends on your situation. Read on for some insight into what businesses are spending on marketing today, and what you need to think about before setting your own marketing spend.
Define your needs
What you want to achieve goes a long way to determining your budget. Your needs are different from other companies and will change over time. You may want to:
– Grow fast
– Grow sustainably
– Build brand awareness
– Maintain an established presence
These are all very different goals, with different associated costs. If you’re just starting out, every company needs a cohesive brand and a functional, professional website. Beyond that, your needs are completely custom.
With that caveat, there are some standards you can use to set your expectations.
How much should a small business spend on marketing?
Marketing budgets are normally measured as a percent of company revenues. To get a dollar amount from the percentages below, multiple them by a firm’s gross revenue.
The August 2018 CMO Survey from the American Marketing Association found an average marketing spend of 7.3% of company revenues from 324 respondents across the US.
The chart below shows this is lower than recent years, but still within a typical range of 7-9% of revenue (source page 26).
Marketing for startups vs established firms
The report calculated average marketing spend by company size, as seen below (source page 27). Generally, smaller firms spend more on marketing than larger companies.
The first step of marketing is brand awareness, so smaller businesses without established brands are wise to spend more on marketing. Established brands can get away with a more efficient budget.
Ryan Flannagan of Nuance Media writes startups should expect to spend 12-20% of gross revenue on marketing, while noting a larger firm may only spend 6-12% of gross revenue on their marketing budget.
When the rules don’t apply
Knowing the rules helps you know when to ignore them, and a standard marketing budget won’t suit every company.
The CMO Survey breaks down marketing budgets as a percent of firm revenues by sector, below (source page 27).
Clearly there are situations where a big traditional marketing spend isn’t as useful. B2B services like mining, manufacturing, and professional services for instance typically rely on sales teams to attract new clients (with sales rarely included in marketing budgets).
You can over-spend on marketing. First, there’s the opportunity cost of a high marketing budget that may be better spent on product or business development.
But there’s also the risk of growing too fast. If your marketing is too effective, you may face more growth than you can handle. That can cause serious cash flow problems that undermine other parts of your business, potentially sending you out of business.
Avoiding this isn’t difficult. First, don’t borrow more than what you need for the growth you can handle. If you’re using Marketlend to access flexible, peer-to-peer finance, don’t over leverage yourself. Make your repayments and you can always extend your line of credit later.
If you do have cash flow issues as you grow, a service like UnLock can provide extended payment terms to supercharge your cash flow, like a corporate version of buy-now-pay-later.
Pay it smart
The key element when setting a marketing budget is to be deliberate. Approach your marketing spend with a critical mind and a clear vision of what you want to achieve, and you’ll be miles ahead of the competition already.
2019 looks like another good year for Marketlend, which is great news for you. A strong year for Marketlend means even more flexible finance for SMEs to grow, and more great opportunities for investors.
Watch Marketlend CEO Leo Tyndall’s 2019 outlook, what he’s excited about, and what he sees as the biggest challenges in the year ahead. Or, read the transcript below.
We’re looking at quite a very positive year ahead. We’ve recently engaged two new sales team who are ex American Express and we’ve seen a significant pickup in our origination volumes in the last year. So we see that in the last month, in November, we did 5.2 million and we see that we’re possibly looking at similar numbers or even doubling those numbers going forward.
With the avalanche of these new products we’ve brought out, essentially UnLock as well as GreenLend, we see a bit of energy there coming back from an investor base as well as from the borrower base. And so what we see is from that side, a very exciting year. From the risk side we have added additional measures to protect our position, or the investor’s position, and so where we see with that is that we see a continued good performance from the book and also seeing that our clients are actually gonna grow with it.
As far as the economy goes, there are some stresses that we are cognisant of and concerned about, especially the construction industry as well as the possible retail industry as the continual issue with the fact of the online businesses growing so well and the retail business, sort of, lease holds being a bit of a struggle. And so what we are focusing is on making sure that we try to diversify away from that as much as possible, or at least when we see those opportunities we ensure that we actually have additional protections for the underlying investors.
The Banking Royal Commission has opened many people’s eyes to the need for greater transparency in the financial sector. It has also shed light on how challenging it has been for SMEs to get funding. Marketlend CEO and Founder Leo Tyndall breaks down why the push for greater transparency and accountability from the finance sector helps cutting edge platforms like Marketlend which have these values built in. Leo also suggests that banks are now shying away from SME lending, making funding sources like Marketlend even more important. Click play to hear what he has to say or scroll down to read a transcript of his interview.
Look, I think the faith in banks generally has fallen away a little bit. The credibility definitely has been damaged, and investors are now looking at alternatives, especially in the investing side. They’re actually looking at who’s out there, who’s actually lending, right, sort of brought up an article recently where they said they saw a serious influx of more investment capital.
We look at high net worth individuals or sophisticated investors or experienced investors, so we’re in a different bucket than, say, [others]. But, we have found that our investors are definitely willing to put more money to work with us, and are looking at our businesses and going well, I can see everything you’re doing. The big thing with us is transparency: they can see everything that’s being done. The Royal Commission, I think the best thing about it, is, it shows us a lack of transparency. It shows that there’s things going on that you just don’t know what the bank’s up to.
And I mean, it depends on the press, who’s saying what. But the reality is that if people are charging fees for people who are no longer around, and they’ve been running forwards and the like, I mean, the whole faith in the banking system is really faint.
Now, I must say, that I would’ve said that there was a common thread, I think in the economists around post GFC, that banks will become more like utilities, and I think with the royal commission a few others, the banks are gonna get less and less money for lend, and it will be that there will be more like utilities without taking the money paid out, or receiving paid out, and you won’t see that type of lending that you saw in the past. And we are seeing that banks are very, very, reluctant to lend at the moment.
We’re seeing clients come to us, who, typically, would’ve said the bankers actually would’ve given them more facility, and we’ve also spoke to banks, and they’ve told us similarly.