Marketing Budget 101 for Founders
As you start to move your business from founder revenue to scalable revenue, it’s absolutely critical to begin to set aside money for a marketing budget. When every dollar is precious and your business has many priorities competing for funding, it can be hard to see why carving out money to spend on marketing is so important.
Why Do You Need a Marketing Budget?
Founder-led firms who want to scale revenue past what the founder can accomplish alone face many challenges. Without any financial resources specifically allocated for growing revenue, it’s almost impossible to create sustainable long-term growth.
When planned and executed well, marketing spend can drive incremental revenue for your company with a measurable return on investment. This begins to create a flywheel effect for your business, increasing the growth rate of your revenue and giving you a big push toward building scalable revenue. But before you can spend marketing money, you first have to have it available. Let’s look at the benefits of establishing a marketing budget, discuss how to determine what that budget should be, and explain how you can get started.
What Are the Benefits of a Marketing Budget?
Setting aside even a small amount of money on a regular basis that is earmarked for marketing activities is a vital first step. When founders commit to funding a marketing budget, there are important ways their firms can benefit:
1. Increased Focus on Ways to Grow
When money is actually available to undertake marketing efforts, consideration of actionable ways to increase revenue gets more mindshare. Since initiatives to impact sales growth can now be funded, identifying programs and activities to drive sales in new ways becomes an exciting possibility to consider.
2. Prioritization of Initiatives
Building a marketing budget is a great way to get all the ideas for driving sales documented in a single place with their associated costs. This allows you to prioritize from a master list and focus spending decisions based on your available resources. Plus the discipline of creating and using a marketing budget will ensure that your marketing efforts are deliberate and not just a collection of scattered one-off spends decided in the spur of the moment.
3. Investing In Your Future Becomes a Habit
The discipline of regularly setting funds aside to invest in the growth of your business creates a powerful habit that can have a huge impact on your company long term. Small but growing businesses always have more operational spending needs than they can typically fund. When companies don’t learn to deliberately save and invest in other areas of the business while they grow, it can be extremely difficult to break out of that cycle and find the funding necessary to scale revenue.
4. You Are Better Able to Compete
Small businesses need to build brand awareness and maintain ongoing visibility within their target audience to scale revenue over time. If your direct competitors are using marketing spend to stay top of mind and grow relationships in your niche, you need to be in a position to do that as well. Having a marketing budget in place helps level the playing field so your company can successfully compete in your target market.
5. You Have a Ready Answer When Asked
“What is your marketing budget?” is the very first question that any potential marketing resource will ask you. Having a budget already in place will help drive clarity and focus during any discussions about how potential marketing spend could benefit your firm.
What Should Your Marketing Budget Be?
While some companies allocate a fixed dollar amount of marketing budget per month, most companies focus on allocating a percentage of revenue to their marketing budget. Marketing initiatives take time and consistency to produce results, so you should plan to fund your marketing budget at a level your business can consistently sustain over time.
The targeted percentage of revenue a small company should spend on marketing can vary depending on several factors, including the size of the company, the industry it operates in, and the spending levels of its direct competitors.
As a general rule of thumb, most small businesses should aim to spend between 6-10% of their revenue on marketing each year. Seven percent of revenue is a healthy target for most founder-led companies to work toward as they begin to focus on building out a marketing budget.
How Can I Start to Build a Marketing Budget?
Even if you’re only able to allocate 1% of revenue to marketing to start with, you’ve taken a huge step in the right direction. From that starting point, you can work to increase the percentage of revenue allocated to marketing in small increments over time as your business changes and grows.
One of the easiest ways to get started on a marketing budget is to put together a basic spreadsheet of your revenue by month for the last 12 months and your projected revenue for the coming 12 months. Choose a percentage you want to allocate toward marketing and then apply that percentage to your actual and projected revenue each month. This will give you an idea of the marketing dollars that could be available if you were able to consistently set aside that specific percentage of revenue each month.
Tweak the percentage as needed to get to a dollar amount that you feel comfortable your business can consistently support from both a P&L and a cash flow perspective. Where it makes sense for the business, look for ways to cut back or slow operational spending growth so you can make funds available for marketing initiatives designed to drive revenue growth.
Where Can I Learn More About How Marketing Can Scale Revenue?
FounderScale wrote the book on Scaling B2B Revenue. Literally. Download your free copy here. Our core focus is helping founders increase their impact in the communities where they live and work by successfully growing their businesses. Contact us to learn how our team is uniquely qualified to become your guide along the journey from founder revenue to scalable revenue.