Most small companies struggle with determining the right budget for marketing. Often small, and even mid-sized companies, are so busy servicing their existing clients that they lose sight of the need to actively market to grow their business. But how much of your annual budget should be set aside for marketing?

“A good rule of thumb is that companies should spend 7%-12% of your annual gross revenue on marketing.”

The truth is for many small companies marketing is approached very casually, if at all. Often it is only when a company starts to face uncertain times and expenses increase that active attention is given to attracting more business. A good rule of thumb for an established business is to expect to spend between 7-12 percent of your annual gross revenue on marketing. This amount should be increased to up to 15% of AGR if you are a start-up or are expanding into new lines of business. As the old adage says “you have to spend money to make money.”

How much of the marketing budget should be for digital marketing

Your marketing mix is entirely dependent on the nature of your business. More and more we are seeing marketing spend move into digital budgets versus traditional mediums like television, radio and billboards. That is not to say that these mediums aren’t valuable – it is just a reflection of the change in the way consumers live and behave. For many businesses their primary sales funnel comes through digital, it makes sense then to also throw the bulk of your advertising spend on digital.

To understand how much of your budget to allocate to digital, you will first need to have a good understanding of where your sales/leads are coming from. If it is from your website, then chances are digital is the best bet for getting return on your marketing investment.

“…having a clear understanding of your website audience and ensuring that your site is optimized to service the needs of this audience is critical to online success. It makes no sense spending money to drive traffic to an underperforming website.”

What does digital marketing consist of?

Your digital marketing budget should take into account two things: first your website itself and secondly how to drive traffic to your website. It really is that simple.

Your first, most crucial step is to make sure your website and all its pages are fine-tuned to improve sales, in the case of an online store, or lead-generation in the case of most B2B scenarios. Even not-for-profit or charitable sites need to tailor their website to meet their donation or thought leadership goals. Regardless of type of business, having a clear understanding of your website audience and ensuring that your site is optimized to service the needs of this audience is critical to online success. It makes no sense spending money to drive traffic to an underperforming website.

Once your site is optimized you can start exploring ways to drive traffic to it. These ways include PPC advertising, email marketing, online video, apps and even digital out-of-home advertising. The places you advertise online will again be dependent on your client base and where they are likely to be spending their time online.

In general, we recommend that your first spend be on Search Ads because with proper management Search Ads should provide you the highest return on ad spend (ROAS). ┬áPlus, Google Ads spend will help you better understand exactly what your customers are looking for, and will help you to further fine-tune your site’s content and sales funnel.