What Should Your Small Business Spend on Marketing?

What Should Your Small Business Spend on Marketing?

What’s Your Marketing Style?

By the time you start or acquire a new business in Delaware or Maryland, you’ve probably made a long list of financial decisions. You’ve already spent a fair amount of time thinking through how you’ll operate, you’ve invested in a location and office equipment, you know how many people you need to employ, and you probably have sales and profit goals. But many new businesses are not sure about marketing spends. After all, some businesses seem to spend a lot on marketing and fail, while others seem to thrive on free word of mouth. How can you figure out what’s right for your business?

Small Business Marketing Tip #1: Assess Your Sales Needs

While some organizations try to tell you to spend 5-10% of your revenue (or more) on marketing, there is no reliable rule of thumb that applies to everyone. For example, in 2015 Apple spent only about 1% of its revenue on advertising, but that translated in $1.8 billion. Some smaller firms, especially those in the service industry, may spend 50% of their revenue on marketing in the early years. As you can see, the yardstick changes significantly based on who you are, what you sell, and, at the end of the day, your ability to commit business resources to marketing.

It’s wise to start by assessing your sales needs and goals first, and then think about what you will need to do to achieve those goals. For example, if you are a six-person salon that can’t keep up with appointments, your primary sales need may be to add another person to handle the overflow. But if you are a six-person salon with some capacity, you will want to think of ways to attract more customers in, so you can work at capacity, and be as profitable as possible.

Small Business Marketing Tip #2: Create Revenue Goals

Before you think about marketing budgets, it’s important to create revenue goals for your business. How much income do you generate now? How much do you want to increase your business’s revenue in the next 12 months? Do you believe you can reach your revenue goals by cultivating more income from your existing customers, or will you need to attract new customers?

Staying with the six-person salon example, if the salon wanted to increase monthly sales from $20,000 a month to $30,000 a month in one year, they would either need to increase the number of customers or increase the average sale price. If they are currently bringing in an average of $50 per appointment, they would need to consider how to increase the average sale to $100 per appointment. Should they promote high-end highlights via an email campaign to customers? Can they set up a display in the salon and start selling shampoos and hair treatments to your existing customers? Should they create incentives for those existing customers to buy hair products from them? Can they figure out a way to get current customers to come in twice a month, instead of once a month?

While the salon should be able to increase the spending of some of their existing customers by expanding products for sale and upselling to higher-priced services, it’s unlikely that the salon would be able to increase spending for each and every customer. That means they’d need to attract new customers who want high-end services like highlights, extensions, and hair styling for special events.

The salon realized that in the first few months, they would need to spend more to get marketing campaigns up and running, and that means they dip into profits. The salon decided that it would spend $2,000 a month, or 10% of its current revenue, on marketing to reach new customers until it reached the $30,000 a month goal. They decided to take an initial hit in profits in order to cultivate a longer-term growth goal.

The salon realized that the addition of just 20 new customers a month would cover the marketing investment, and so they decided that as long as they booked 20 additional appointments a month, with an average $100 spend, they could break even.

Small Business Marketing Tip #3: Leverage Your Marketing Budget  

It’s sometimes hard to get started in marketing. You will run into a lot of marketing experts who tell you that you should spend time developing your brand persona and reworking your logo. This is often a great idea, and if you have money to pursue these steps, you should do it. But if you must choose between redoing your logo and actively marketing your services, choose marketing.

In the salon example above, the team decided to run some local radio spots, (a great way to attract attention for local retailers and services) targeted to young women, promoting their expertise in highlights and high-end color. They also ran a highly targeted Facebook campaign with images of high-end highlights. (A cost-effective way to reach a very small, very targeted audience.) They spent a total of $2,000 a month.



While no one can guarantee results, in this hypothetical example, you can see how marketing combined and with the revenue of repeat customers could build revenue over time.

As you can see, in this example, the value of new appointments must also be tracked with repeat appointments or the lifetime customer value. In this example, the salon missed their original goal of 20 new appointments in many months, but about 50% converted into repeat customer each month, so, over the course of the year, they reached their goal of an additional $10,000 in monthly revenue.

At the end of the year, they calculated their total increase in sales ($61,500) and subtracted their total marketing spend ($24,000) and came out $37,500 ahead, with an average increase of $3,125 a month after marketing expenses.

Small Business Marketing Tip #4: Be Patient and Pay Attention to Marketing Momentum


While it’s tempting to try a marketing tool for a few months and then move on to the next tactic, be patient! As the example above shows, time and momentum can have powerful effects on your marketing budget. While you may not meet your goals in the first month or even the second, focus on your long-term goals, and give your marketing the time it needs to work.

Don’t forget to track the value of repeat business and return customers in your marketing equations. As this example showed, if the salon had only tracked new appointments, the marketing would have been deemed a failure. But by tracking the value of repeat business, the salon was able to evaluate the overall impact of marketing and make an informed decision on whether to continue their marketing spends in the next year.

Small Business Marketing Tip #5: Determine Your “Easy” Marketing Growth Goal

If you’re a new business thinking about marketing, start by setting an “easy” goal for the year. How much new business can you handle before you have to invest in new people, bigger offices, or new equipment? In the salon example, the business decided they could handle about 25% more customers, but also wanted a higher revenue per customer. By combining these two goals, they were able to increase revenue by 50%.

Once you’ve set your “easy goal,” its time think about how much are you are able to spend to help you reach this target, and what kind of products or services will these new customers purchase to make them a good investment? How will you track new customers and how will you track the value of a repeat customer?

Whether it’s radio ads, live promotions, digital marketing, or coupon programs, a FMDi representative is experienced in helping businesses in Delaware and Maryland find the marketing tools that work best for their business goals. Our team will help your business find the right marketing tool for you to reach your goals.


Small Business Marketing Tip #6: Calculate Your “Next Step” Marketing Goal

Once your business has reached its “easy” marketing goal, it’s time to think about upgrading. Will you expand your business to serve more customers, or will you look for customers with a higher profit margin, like the salon did? Do you even want to grow, or do you want to continue to upgrade your customers and your revenue per customer?

There’s no one answer to these questions. You’ll have to evaluate your business and risks and make the decision that’s right for you. But no matter which course you take, a FMDi representative can help your Maryland or Delaware business think through marketing options to help you reach the right people at the right time with the right messages.

Ready to get started? Contact a FMDi Marketing Representative Today.