The marketing cost for a small business will depend on the type of business and the industry in which it operates.
Also, the activities that are considered marketing costs for small businesses can be different in each scenario.
You can have the typical marketing costs like advertising.
But you can also have a strategy of giving a certain amount of your products or services for free as part of your marketing strategy and then the cost of the products or delivering the services becomes your marketing cost.
In any case, the most important thing is to make sure that the money you invest in marketing generates a positive return. Ideally, this means that you grow your revenue.
But in other cases, the positive return can be better data or in-depth knowledge about your ideal clients. Which will allow you to make better decisions, which then leads to revenue growth or using your resources efficiently.
Small businesses don’t have the leeway that big corporations have. Corporations play a different game and can spend millions of dollars on a Super Bowl ad for branding purposes.
A small business doesn’t have that luxury.
In many cases, for small businesses, spending money on marketing that doesn’t lead to more sales could mean not being able to pay the bills.
The goal of this article is to help you think deeply about the marketing cost for a small business so that you can make sure that you will get your money back.
We will focus on digital marketing costs which is where we have more experience.
In this article we will go over:
- Fixed vs Variable marketing costs
- Digital marketing costs for small businesses
- How much should a new small business spend on marketing
- How much should you budget for marketing
Contents
Fixed Vs. Variable Marketing Cost for a Small Business
We can divide marketing costs into fixed and variable.
Fixed costs will be items that you pay once and are necessary for running the business. These are items like:
- Domain
- Website provider
- Hosting
- Logo and branding
You likely pay once for these, or a yearly fee, and the amount doesn’t change much. Ideally, as a small business, you should keep these to a minimum.
Variable costs will be items on which you can spend as much as you can. These are items like:
- Blog writing
- Influencer campaigns
- Google ads
- Facebook ads
- Video production
You can, and should, spend as much as you can on these ones as long as they are giving you a positive return on your investment.
For example, if you are spending $1,000 per month on ads, but these are bringing 5 new clients, which represent sales of $10,000, then you try spending more and see if the ratio stays the same.
If the next month, you spend $2,000 on ads and generate $20,000 in sales then you have a great opportunity to keep growing your business.
Of course, this is an oversimplification, because you also have to include the cost of paying someone to run the ads (which is usually a flat monthly fee + a % of the ads spend) and the cost of delivering your services.
But the point is that, with your variable marketing costs, you must have a way to quantify what type of results these are generating so that you can make informed decisions about your marketing budget.
Digital Marketing Cost for a Small Business
There are two main types of ways to spend money on digital marketing.
One makes it a cost and the other one an investment. Both have advantages and disadvantages.
Ads fall into the category of digital marketing costs. You have to spend money every month to generate results. And the moment you stop spending money on ads, the flow of clients will stop as well.
The advantage of this way to spend money is that it usually generates results quicker.
You will still have to track results in order to optimize your ads and your landing pages. But when done correctly, and all the key elements are in place (you have a great website, testimonials, etc.) it could generate results almost immediately.
On the other hand, there are ways in which you can invest in marketing. Content, especially blogs on your website and videos on YouTube, falls into this category.
When done well, you create content once, but it can generate results for a long period of time. An example of this is two of our blogs that generate 50% of our traffic.
According to Ubersuggest, our traffic is worth around $10,000 a month. This means that, if we wanted to generate those same visits to our website through ads, we’d have to pay $10,000/mo.
If those two blogs generate 50% of the traffic, it means that they are generating each month around $5,000 of value. This means that in a year, those two blogs can generate at least $60,000 of value in traffic.
And we are not counting the revenue generated from the leads these blogs have created.
And we only had to invest in those blogs once.
Let’s say the cost of each blog was $2,500. In that case, we invested $5,000 to generate $60,000. That’s more than a 10X return.
The downside with the types of marketing activities that can be considered investments is that they take more time to generate results. A blog can take anywhere from 2 weeks to 12 weeks to start generating traffic consistently.
The important insight here is that you should start thinking about these two categories (marketing costs vs marketing investments) when making decisions about your marketing budget.
How Much Should a New Small Business Spend On Marketing?
This will depend on what type of “growth engine” you are building for your business.
Ideally, at least at first, you should spend as little as possible on marketing. Unless you have a huge budget (from loans or investors) you might want to rely on your network to get the cash flow going.
This means that at the beginning your marketing can be as simple as sending emails or inviting friends and family for an “opening day”. Of course, this depends on the type of business you run.
In the case of small businesses that offer professional services, you might not even need a website at first. You can get started with a great LinkedIn profile and a couple of free accounts for calendar scheduling and virtual meetings.
You can use your LinkedIn profile as a landing page, where you can describe your services. And the call to action is a link to your calendar, within your featured section, so that people can schedule meetings with you.
That’s it.
Later on, as you start to generate consistent cash flow, you can invest in a logo, a website, and some basic content creation.
Once you’ve been generating profit for several months, you can then consider some marketing investments to grow your business. Here is a detailed pricing list of some of the digital elements you might want to consider.
The goal is to be profitable from day one. Then, you can focus on creating a consistent flow of leads and scale accordingly.
How Much Should I Budget for Marketing?
On average, it should be a percentage of your revenue.
Also, as we’ve mentioned before, you should spend as much as you can on marketing if it’s generating a positive return and if you can service all the leads you generate with those efforts.
It’s always a good idea to also reference industry benchmarks.
Companies like IBISWorld do research on many different industries and put together reports that you can read to have an understanding of key variables in that industry.
You shouldn’t always follow the benchmarks. But these are always great starting points when making key decisions.
And make sure you are separating your budget into the two areas we discussed at the beginning. You should have a fixed marketing budget (website, etc.) and a variable marketing budget (content, ads, etc.).
How Much Should I Invest In Marketing?
We’ve shared with you some frameworks and key pieces of information so that you can make better decisions about how to use your money to grow your small business.
If you want more guidance on how to make projections and estimate the potential result you can get when investing in marketing, you can schedule a call to talk with a consultant.
You can learn about what would be covered in that call here.
