What Percentage of Revenue Should a Small Business Spend on Marketing in Their First 3 Years of Being in Business?

Small business owners know just how important marketing is to their success. But when you’re just starting out, it can be hard to know how much of your revenue to spend on marketing. Should you go all out and put most of your budget into a marketing campaign, or should you take it slow and invest in other areas of your business first?

The truth is, there’s no one-size-fits-all answer to this question. However, there are some guidelines and best practices you can follow. In this blog post, we’ll explore how much percentage of revenue a small business should spend on marketing in their first 3 years of being in business, and provide you with some tips to help you make the right decision for your business.

1. Understand the importance of marketing.

Marketing is crucial to the success of any business, especially during the early years. By creating awareness of your brand, generating leads, and converting those leads into paying customers, marketing helps you grow your business and increase your revenue.

However, marketing isn’t just about throwing money at ads and campaigns. It’s about creating a strategy that’s tailored to your business and target audience. That’s why it’s important to assess your marketing needs early on, and allocate a budget that matches those needs.

2. Determine your marketing budget.

As a general rule of thumb, small businesses should allocate around 7-8% of their total revenue to marketing. However, this number can vary depending on the industry you’re in, your competition, and your growth goals.

If you’re just starting out, it’s a good idea to start small, with a budget of around 5% of your revenue. As your business grows and you start seeing the results of your marketing efforts, you can gradually increase your budget to around 10-12%.

It’s important to note that your marketing budget should be flexible, as you may need to adjust it depending on your business’s needs and external factors such as changes in the economy or market trends.

3. Invest in the right marketing channels.

Once you’ve determined your budget, it’s time to decide where to invest your marketing dollars. This will depend on your target audience, your business goals, and your budget. Some popular marketing channels for small businesses include:

– Social media marketing: Social media platforms such as Facebook, Instagram, and LinkedIn can be a cost-effective way to reach your target audience and build brand awareness.

– Content marketing: Creating valuable and informative content, such as blog posts or how-to guides, can help you establish your business as an industry leader and attract potential customers.

– Email marketing: Sending targeted emails to your subscribers can help you nurture leads and keep your audience engaged with your brand.

4. Measure your results.

Marketing is an ongoing process, and it’s important to track your results to see if your efforts are paying off. This includes tracking metrics such as website traffic, lead generation, and customer conversion rates.

By measuring your results, you can see what’s working and what’s not, and adjust your marketing strategy accordingly. This will help you make the most of your marketing budget and maximize your return on investment.

Determining how much percentage of revenue to spend on marketing in your first 3 years of being in business can be a difficult decision. However, by understanding the importance of marketing, determining your budget, investing in the right channels, and measuring your results, you can make an informed decision and set your business up for success.

Remember, marketing is an ongoing process, and it’s important to be flexible and adjust your strategy as needed. By staying up-to-date with industry trends and best practices, and keeping your target audience in mind, you can create a marketing strategy that helps your business thrive.

Getting Creative

This past year, small business owners were especially impacted due to the COVID-19 pandemic. Many had to make the hard decision to shut their doors to keep themselves, their families, their employees, and the community safe. In doing this, owners were struggling with how they will pay rent, wages, and even their expenses.

Nevertheless, small business owners got creative and found ways to stay afloat when the odds were against them.

Small business owner of the City Room Cafe in Nashua, NH, Terry Wade, was just one of many affected by the pandemic. Last May, Terry closed her cafe doors to keep her employees and the community safe during a trying time. While she was closed, Terry made the most of her time thinking of new ways to adjust her business to the “new normal”. She decided this was the ideal time to renovate her cafe. She painted the walls, bought new tables and chairs, as well as new equipment for her kitchen. Not only did she renovate her cafe she also redesigned her menu and created a social media platform where she could stay connected with her customers during a difficult time. Terry was constantly updating the community on the renovation and when she was expecting to open her cafe again. Her customers were eager to be back and see the new changes. Terry was once again able to open her cafe doors in July and people were lining up to eat at their favorite breakfast spot!

Many small businesses like the City Room Cafe chose to get creative during a tough time. According to Kathy Gurchiek from SHRM, “43% of small businesses have started rethinking the way they do business since the coronavirus pandemic began, 32% have found a new way of delivering existing services, and 22% have asked employees to learn new skills to support changes in the business”. Below are a couple of ways for businesses to get creative:

  1. Social media. Many businesses are using social media to further promote their products and services. However, it’s not enough to simply create a social media presence. You need to create content that people care about. Think about the mission and values of your company and why people keep coming back. Then think of how you can use that to create content that people want to see.
  2. During a time when many people are working from home, social media has become ever so popular. Businesses can take advantage of this and create a platform where they can stay connected to their customers as well as new ones. A social media platform can regularly update customers and keep them hooked to the product or service they once enjoyed.
  3. Communication. During an uncertain time, staying connected with customers is extremely important. It’s so easy to think a business isn’t open during this time if they are not constantly letting their customers and the community know the hours and days they are open. Posting this once a week to a social media platform can increase the amount of customers you are getting.
  4. Digital platforms. For the businesses currently closed, digital platforms are a way to promote your product or service from home. For example, a yoga studio could provide live stream videos of their workouts for customers to join in on. The customer could pay for a monthly subscription and the business is still able to make money remotely. Another example would be a coffee shop that may not be getting as much business because of people working from home. Creating a digital platform where customers can buy your coffee beans, syrups, or teas would provide revenue for the business and the customers will benefit from it.

Thinking of creative ways to make money during this difficult time can be hard. However, many people in the community want to support their local businesses, so offering them a way too can be beneficial to both the customer and the business.

Creating the Funnel

Everybody is an expert at something, well, almost everybody. If you really take a minute and look at your life, you are probably really good at one thing or a string of a few things. This is how solid businesses are formed, when people turn a skill, talent, or passion into a profession. Every single day new businesses are formed over 1700 to be exact. That is a lot of people trying to turn their skill, talent, or passion into a profession, unfortunately, just over 1600 fail every day.

Generally speaking just because you are good at something does not mean that it can sustain or replace your income. Being good at something is not enough, most of the time the talent people have is not being “good” at business. Being “good” at business is the crux of it all, it is a learned skill, a skill that some people pick up faster than others but it is the learned skill of business mixed with the passion and skillset of something else that leads to the 100 or so continuing businesses every day. This basically comes down to marketing because that is the first step of getting customers. Marketing is hard. You need customers to run a business without them you just have an office, idea, and skillset. No customers, no electricity.

There is an old marketing/advertising adage that goes something like “I will always spend a dollar if it will make me 2 dollars.” Now that makes perfect sense for the most part (most people in marketing/advertising are actually looking for a better return than that but it works for this example) wouldn’t you spend $100 if you are guaranteed a return of $200 or how about $1000 to make $2000 or better yet $100,000 to make $200,000. Well, yes of course you would but I think we all know that for the average joe that it is simply not that simple. Marketing and advertising are very difficult. There are many factors that play into this: who are your customers, how much do I have to spend, what to I do when someone is interested, how do I add value, how much is a fair price to charge, is my add attractive, and some much more.

I am not going to get into how to create the perfect marketing or ad campaign in this blog post but I will touch on the basics. If you are reading this blog you have probably heard of a funnel, as it pertains to marketing. Picture a funnel and it is large at the top and very narrow at the bottom. This is what your marketing campaign should look like. For example lets spend $100 on facebook advertising, maybe we get about 10-30 people to click on the ad that we have populated. This is the top of the funnel, from here we send them to a specific landing page tailored to their niche or what we targeted them for, they spend some time on the landing page and perhaps fill out the form for their contact information, maybe they fill out the survey we have which gives us even more information. Now we are reaching the bottom of the funnel where we have good qualified leads. This is the ultimate goal.

But again, easier said than done. Here are the basic steps listed below in order:

  1. Find an advertising platform (Google, Facebook, Bing, other social media)
  • Facebook is by far the cheapest and one of the most effective
  • All of these platforms are complicated and change quite frequently
  • I recommend taking a class or spending a few weeks learning if you are going to do this on your own
  1. Targeting
  • Who are your customers?
  • Ad platforms allow you to target exactly who you are looking for (Facebook is best for this)
  • You can target 40-50 year old, stay at home moms, interested in yoga & tennis, that live in Wyoming (really is no limit)
  • Be as specific as you need to be to make sure that you are wasting any marketing dollar

  1. Setup a landing page
  • This is crucial to the success of your ad
  • You can do this many ways, either on your own or by hiring a professional
  • Allows analytics on your visitors
  • Allows you to better optimize your ad

  1. Create free value add content
  • Give some value away for free in exchange for contact information
  • Video, PDF, brochure
  • Make sure it has enough value in it that they want to learn even more
  1. Watch the leads come in

This is the crux of setting up a solid marketing/advertising funnel. It is easier said than done and the most successful ad campaigns are done by people that are considered experts in the field. With that said, if you have the intellect you can become relatively proficient after 20-40 hours of learning how the ad platforms work.

Long gone are the days of cold calling. People do not want to talk to you, they want to find something on their own and make a decision. If they see something on the side of their screen then it was their idea not yours. Remember nobody likes to be sold something but everybody likes to buy something.

Dress to Impress

The famous Zig Zigler once said “You cannot climb the ladder of success dressed in the costume of failure.” In short this means that you have to “look the part”, in business “looking the part” is an underrated principle that if mastered goes a long way. It does not matter which company you work for or which department you are involved with because you still have to look the part. Would you be a successful/respected janitor if you wore a tuxedo? How about a successful clown if you wore gym shorts a tank top and no makeup? Of course not, these are very elementary examples about what I am speaking towards. 

This principle works for more traditional business departments as well, here are a few: 

Management or Executive Positions: Must command yourself in a manner that demands respect and illustrates why you are the leader. This starts with your clothes, body language, attitude, and overall demeanor. People are looking for a leader, this does not mean that you have to wear a $5,000 suit, it simply means that your outfit has to be a non issue. (People don’t look at it and think wow thats a tough work outfit, he is my boss?)

Sales: You must fit in with the crowd that you are selling to. If you are selling Ferraris at the Los Angelas Ferrari dealership you should probably be dressed in business formal clothing as that is likely the clientele you will be dealing with and more so what your clientele will be expecting. However, if you are selling Ford’s in a small town in Maine then a polo and jeans will suffice and ultimately make your customer more comfortable with the buying experience. 

Marketing: Whatever business or industry you are in your website, signage, etc has to match your overall culture and brand. The marketing efforts must be impressive to YOUR customer base. If you are trying to attract a right wing conservative group, you had better have an American flag on your promo material. 

The main take away from this is to identify where you fit in a market, regardless of your department or industry, and make sure that you “look the part”.

What is the Rule of 7?

In order to grow your company and develop a strong market share you must have a strong brand. There’s an old marketing phrase called The Rule of 7. It indicates that your brand needs to be seen seven times before it’s registered in someones mind. Your marketing message needs to be seen 7 times or your tag line needs to be read seven times. I have worked with dozens of companies where the company name is branded on all promotional material in Times Roman font. I’m certain that there is nothing more boring (or transparent!) than that presentation.

Now, it is true that there is a huge argument for repetition. I suppose if you were to take that same boring company name in Times Roman font and couple it with a massive (and expensive) marketing campaign, that would create recognition, but why would you want to do that or spend that kind of money?

Branding is in fact about repetition but let’s define branding. Dictionary.com (whatever happened to Noah Webster?) defines branding as the promotion of a particular product or company by means of advertising and distinctive design. The important reference in that definition is “distinctive design”. A good example of branding would be the insanely fast growth of Planet Fitness. A health club started here in NH. One tiny and simple contributor of their growth is giving away vinyl stickers for members cars. Ubiquitous branding and recognition would be an understatement!

Two of the most prodigious monikers of success are McDonald’s and Nike. Nike has been known to take out a double, full page ad in the Wall Street Journal and simply insert their swoosh, that’s all. Remarkably successful and ostensibly simple. How did they get to where they are today? In large part to repetition of branding.

We have worked with many companies teaching them the need for a logo and the art of repetition. There are some basic facts that need to be in place and one of those is to know your market. More on that in another post.