With the last few weeks of the first quarter of 2023 here, business owners across the country will be reevaluating how the start of the year has gone. In this post-pandemic year, businesses will be looking for quick wins and will be pivoting on the fly. Because of this, things like goals, budgets, and initiatives will be shorter-term and constantly re-evaluated.
Taking a look at how your company is doing in each key department will be important in determining your success over the rest of the year. One key area of your business that should be closely monitored is your marketing.
Your business’s marketing strategies will directly affect the success of your business. In turn, your marketing budget will impact how successful your business’s marketing efforts are. While a bigger budget does not necessarily mean better results, it will certainly improve your odds of success. Due to the pandemic, and a lot of other outside factors, business owners may be struggling to set budgets for their business this year.
Moving forward, let’s take a look at what your marketing budget should look like for the remainder of 2023.
What would a typical marketing budget look like?
Every business is going to have different wants and needs that will dictate their budgets. Because of this, not every business should have the same budget.
Without having an exact number to use, business owners often struggle to set an efficient marketing budget. Luckily, the SBA is here to help.
According to their guidelines, in a normal year, a business that makes under $5 million dollars would want to set around 8% of the annual revenue toward their marketing budget. Any business that makes over $5 million dollars should be looking to allocate at least 10% of its revenue to the marketing budget.
Keep in mind that these are merely guiding numbers to consider, they should not be taken at face value. Depending on the situation you find yourself in, your allocated budget may be very different from the SBAs suggestions. These numbers do at least give you a starting point.
How has the pandemic impacted marketing budgets?
As stated above, the SBA has guiding budget numbers to give you in a typical year. This past year has been anything but typical, and your respected budgets should be a direct representation of this.
The pandemic has greatly impacted business budgets as a whole, which in turn, has impacted marketing spend. This means that your budget should be based on the type of year you have had, as well as what type of goals you are looking to achieve.
Too often, we hear recession and think that budgets need to be slashed, this can cause more harm than good. Remember that in these trying times that the situation of your company will dictate what your marketing budget should be.
So let’s take a look at some of the most common scenarios that you may find yourself in, and identify how you can effectively set a budget for each of these instances.
How much should I spend if my business is struggling?
Anytime that you are struggling with finances it can be stressful. Struggling with business finances can be downright mind-numbing. As a business owner, it can feel like every decision you make could result in the downfall of your business. While this is technically true, you cannot let fear overwhelm your decision-making skills.
If you are a struggling business, there are a few routes you can take when setting your marketing budget moving forward. Each avenue will come with its own benefits and drawbacks, so choose based on the needs and wants of your business.
Aggressive Spending (20-25% of monthly revenue)
If your business is struggling it may be time to shake up the way you do things. It can be easy to want to cut spending when things are going wrong, but sometimes, you need to fight fire with fire. Aggressively increasing your marketing budget for a short period of time could help improve brand visibility and increase sales.
Spending money during a recession can be tough, especially if you do not have the capital on hand to spend. If this is the case for your business, consider applying for a short-term business loan to cover the costs. Business loans can provide you with money that can be spent on equipment, software, or any other costs associated with increasing your marketing efforts.
Pros associated with aggressively marketing while in a downturn are:
- Marketing can help pull yourself out of a rut.
- During the recession, other companies have cut marketing. Being aggressive will help you stand out from the competition.
- It can empower the rest of the company.
Cons associated with aggressive marketing while struggling, are:
- You are betting on the future success of your business.
- You are likely taking money away from another department within the company.
Spending more money on marketing is a big risk to take, but the payoffs can be immeasurable.
Maintain Spending (8% of monthly revenue)
Not every business should be aggressive during a downturn. What might have worked for one company may not work for another. In fact, some companies may find that if they hold put, they might be able to ride out the recession.
Companies that can simply maintain their spending when times get rough are usually larger in size and older. This is because companies that have been around longer typically will have better brand recognition and loyalty. Maintaining spending will ensure that your marketing efforts stay as successful as they were before, without impacting the revenue too much.
While larger businesses that are struggling may be able to maintain spending without leaning on outside assistance, this is not the case for smaller businesses. If you are a small business, it would be wise to use outside funds to cover at least some of your marketing expenses.
Pros associated with maintaining a marketing budget while in a downturn are:
- Marketing momentum is maintained.
- You are betting on the future success of your business, which can empower the team.
Cons associated with maintaining a marketing budget while struggling are:
- It does not immediately help improve your situation at hand.
Maintaining spending while financially struggling is still seen as a risk to some. Just know that there are benefits of doing so.
Cut Spending (2-5% of monthly revenue)
For some businesses, maintaining or increasing their marketing spending just may not be viable during a time of financial hardship. Cutting spending should only be reserved for times of extreme financial stress.
Businesses that can benefit from a temporary cut in their marketing budgets are usually smaller in size and provide an essential product to society. Businesses like banks, gas stations, pharmacies, grocery stores, and most healthcare providers, do not rely on marketing budgets as much as something like a retail store would.
If your business isn’t in one of those industries, you likely will not benefit too much from cutting spending, at least in the long run.
Pros associated with cutting a marketing budget while struggling are:
- It will provide you with temporary financial relief.
Cons associated with cutting a marketing budget while struggling are:
- You could be losing out to the competition.
- Your long-term brand loyalty will take a hit.
Cutting costs can be unavoidable. If you do slash your marketing, just be sure to think about the long-term impacts that it will have on your business.
How much should I spend if my business has been more successful?
While most have struggled in the past year, there are some businesses that have found success amidst the pandemic. If your business is in that boat, congratulations!
Just because your business is making money does not mean that it is easier to make financial decisions that will impact your business. Business owners in this situation have just as much responsibility on their shoulders as a business owner who is struggling. If you rush financial decisions, you can easily reverse the success of your business.
If you have been doing well, good job, but know that the work is not done yet. You will need to still make decisions regarding things like budgets. Let’s take a look at some of the avenues you can take when setting your marketing budget for the remainder of the year.
Aggressive Spending (20-25% of monthly revenue)
If you are doing well, you likely have some extra money to spend across the business. Aggressively increasing your marketing budget while doing well is like gambling with house money. Just remember that increasing your marketing budget does not guarantee future success, it just improves your odds of success.
Pros associated with raising your marketing budget while doing well are:
- There is a better chance of attracting new customers.
- There are improved odds that your efforts will be building brand loyalty.
- More and better opportunities for marketing efforts.
- It allows the marketing team to be more agile.
Cons associated with raising your marketing budget while doing well are:
- The money could be spent elsewhere in the business.
- You are betting on the continued success of the business.
Upping your advertising while doing well makes sense, but it is not always necessary to be successful
Maintain Spending (8% of monthly revenue)
If it isn’t broken, why fix it? The age-old cliché holds some truth at times. If your business is doing well, why change something?
While the benefits laid out above may have you thinking about increasing your marketing budget, sometimes, staying put is better than changing things.
Organizations benefit from continuity. If you made a plan, stick to it! Your coworkers will see that leadership is effectively able to create and stick to a plan that was conveyed to the whole company. In other words, it will make your organization appear more trustworthy.
The main pros of maintaining the same marketing budget you started with are:
- The continuity of your yearly plan will be appreciated by the team.
- You should continue to gain customers through marketing.
Some cons of maintaining the same marketing budget you started with while doing well are:
- Other companies that are in the same situation may be increasing their budgets.
- You could hit a plateau eventually with your marketing spend and ROI.
Maintaining your marketing budget will help the success of your business over time, without putting you at great risk of financial loss.
Cut Spending (2-5% of monthly revenue)
Cutting spending while doing well would only really benefit a business owner in one of a few situations.
- Your industry is seasonal and the slow time of year is coming up.
- Your industry benefited from the pandemic and as the virus is curtailed so too will the added business you have been experiencing.
- You have another large initiative that you need money for.
If your business is doing well and is not in one of those situations, then there are not too many reasons/benefits to cut your marketing budget.
There are many drawbacks associated with cutting your marketing budget, especially when doing well. Some cons of doing so are:
- You fail to capitalize on the momentum built this past year.
- You give the competition a chance to close the gap.
- You can lose the trust of the department.
Overall, cutting costs on your marketing is never ideal, especially when the business is doing well.
Final Words
Hopefully, this guide will help you and your team better understand the impacts of setting and maintaining a marketing budget. Budgeting is a finicky area of business to traverse. In today’s competitive environment, one wrong decision can negatively impact the success of your business. Combine this with the volatility of the economy due to the pandemic, and it can feel like marketing should be the last thing you care about.
Moving forward, if you have any questions about anything digital marketing, feel free to reach out! I would be happy to lend my expertise to you.
