If you are running a small business that’s making less than $15 million per year, chances are you don’t have a formal marketing budget. That’s okay – a lot of business leaders are in the same boat. But having one will help you figure out if your marketing strategy is working. It can also help you determine if the marketing agency you’re considering is worth the fee they would charge.

A marketing budget is basically a plan for how much money you’ll spend on marketing and where you’ll spend it. When you create it, it should be specific enough so you know how much each tactic costs, and you should be measuring results by tactic. That is how the budget will help you decide what changes to make to your marketing strategy.

If you don’t have one yet, you may not know where to start. I suggest you start by talking to your CFO about how much money you can afford to spend, or looking at your detailed Profit and Loss statement. But that will only be looking at the amount of money you are spending on marketing efforts and related tools and technology. There are other costs that need to be taken into consideration as well.

Many small business owners like you are doing their own marketing. Without realizing it, they are spending considerable time on marketing tasks. You need to think about the time you spend on marketing and how much money you could have made if you were doing other things instead.

For example, let’s say you charge $250 an hour for your work and you spend 15 hours a month on marketing tasks. That’s $3750 worth of your time spent on marketing. Each month. And, if you have employees who are handling marketing as part of their duties, you need to think about the opportunity cost of their time and take into consideration the salary you are paying them for the time they are working on marketing.

Then there’s the money you spend on things like your website, hosting, and email platform. These may or may not have been calculated when you reviewed your financials. You don’t want to double count these costs, but you need to ensure you did not overlook any. When you add all these things together, you should have an estimate of your current marketing budget. You may also realize that you’re spending more than you thought.

What’s a reasonable amount to spend on marketing? That varies based on your company’s stage of growth, financial growth goals, market competition and a few other factors. The generally accepted amount is between 7% – 10% of your total annual revenue, but that amount may be a bit low these days. I usually recommend setting a budget of 10% – 15% of revenue (EBITDA). If you are bringing a new offer to market or breaking into a new market, you might expect to spend at least 15% – 20% of the expected increase in gross revenue from the new initiative(s) for the first year, and dial it back after that.

When they do this, many business leaders find they are better off hiring a marketing agency or fractional marketing team when they complete this exercise. You may very well find that you’ll save a lot of time and money. They can do it faster and better than you can because it’s what they’re good at.

So, is your marketing budget working efficiently? That’s something to think about. Or you could chat with me to find out more today.