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How Much do Small Businesses Spend on Advertising

Advertising is arguably the most important piece of a business. It’s what makes it tick — after all, it’s a way of broadcasting your business. In the long run, it will help widen your business reach, and ultimately help you to attract customers in the long run. But the big question remains — how much do small businesses spend on advertising?

Speaking of small business advertising, you’ve got to figure out the average marketing budget for a small business.

Before diving into how much small businesses spend on advertising, you’ve got to understand why small businesses need advertising. Simply put, why is marketing so important for your small business? Well, here is what you need to know.

Why do small businesses need advertising?

If you’re like most business owners, you’ve probably pondered over this question. Well, it all boils down to perception.

Perception, to a large extent, is greater than reality. Yes, perception is powerful — and advertising can help change the narrative of your business in the marketplace. If there are outdated or negative narratives of your business in the marketplace, good advertising can help change the story. Here are reasons why marketing is so important for your small business.

  • Boost traffic and generate leads:

Whether you’ve got a brick-and-mortar business, or you run a business online, you need eyeballs — and quality advertising can help you do just that. Advertising can bring lots of customers to your doorstep, and also fill up your sales funnel.

  • Introduces new products and broadcast special promotions:

Do you have new lines of products, or do you want to announce a special sale (or promotion)? Good ads can help you do just that!

  • Boost brand awareness:

If you always want to be at the top of your customer’s mind, then your best shot would be through advertising. 

  • Get found online and in various gadgets:

Getting found online is pretty straightforward, provided you know what to do. Being found on mobile and map search is vital for people who manage local businesses. You can start by having a presence on the Bing Places for Business page and Google My Business page. But that’s not the endpoint. You can take one more step forward by running Google or Bing ads that convert.

  • Grow your social media following and email list:

Social media advertising is a sure way of getting more email subscribers and loyal social media followers. That’s not all, it’s a good way of accomplishing other important marketing objectives you may have. 

If you can get email marketing consent from your audience, then you’re on your way to massive online growth. Another way of growing online is by getting people to follow your social media pages.

What is a reasonable budget for marketing?

One way of coming up with a budget for marketing is by taking a look at the average marketing budget for a small business in your industry.

Experts claim that small businesses should allocate about 1 percent of their total revenue to advertising. Although that may seem cool on paper, it’s hard to practice.

Regardless of your level of experience in your industry, you’re probably wondering how to calculate the amount spent on advertising. It’s pretty straightforward if you know what to do.

What is the average marketing budget for a small business?

Expert analysts claim that the average marketing budget for a small business should be one percent of its revenue. Yes, the amount may not be significant, but it has been the norm for the last couple of years.

That is if your annual sales are $1 million, 1 percent of that figure would be $10,000. And if your annual sales are $500,000, 1% of that figure would be $5,000. You see, 1% will be spent on advertising for your small business. This seemingly insignificant figure could cause a whopping change to your business. And if done right, you would pretty much reach out to the right audience and attract quality leads for your business.

For clarity, the amount spent on advertising is not fixed in solid. Depending on the type of industry, there are small businesses that spend a significantly higher amount on advertising.

If you’re in the retail industry, you would agree that most jewelry stores and furniture stores that generate less than $10M annually spend above 4% of their revenue on advertising. Spending such a quantity on advertising could be dependent on the benefits that are tied to advertising for these firms. Quality advertising could be one of the backbones that helps drive massive traffic to their business.

Moving on, there are industries where less amount is allocated to advertising. For instance, manufacturing firms spend about 0.7% of their overall revenue on advertising, while those in the wholesale business spend about 0.6% of their revenue on advertising. That’s not to say that advertising does not play a significant role in these businesses. They could be channeling extra funds into technology, staff, or inventories.

All in all, the amount you should spend on advertising is not fixed in stone. Yes, there are no laws that govern it — but you could place your budget around the standard in your industry.

Furthermore, picking a random number off the top of your head could prove flawed in the long run. Yes, such strategies do not work — and you’re better off not applying them.

To be on the safe side, you’ve got to consider what other small businesses in your industry are doing and try to apply the same strategy to your business. Before proceeding with your advertising budget, you’ve got to consider factors like.

  • Business experience: How long have you been in business, and what has your experience been so far? The answer to this question, to a large extent, will determine how your advertising budget will look like
  • Marketing objectives: What’s the best media channel for your business, and how will advertising in these channels meet your marketing objectives? If you’ve got a reliable marketing channel, what would be the cost of advertising using such channels?
  • The stage and size of your business: If you’re running a startup that generates up to $200,000 annual revenue, then you should consider spending about 10% of your revenue on ads — and you can do that for the first six months of your business. If that seems like a big deal to you, then you should see it as a business investment. That way, you’re confident of generating a return on investment.
  • Competitive landscape: who are your competitors and where do they advertise? Also, how much will it take you to stand out in your industry? 

As a general rule of thumb, you should buckle your advertising belt if you’re in a competitive industry. In such industries, you should consider spending a significant amount on pay-per-click adverts. The cost of running converting ads in these industries may be through the roof — and yes, you would likely spend more to generate better results in such industries.

On the bright side, you can easily measure your ROI in terms of sales, and other reliable metrics. As an avid business person, you should know that spending $X amount would likely generate $Y sales per month. To lessen the burden that comes with running converting ads, you’ve got to build the cost of these pay-per-click advertising into your pricing. This way, shelling out 5% of your revenue will not be a big deal.

Let’s take a look at it from another angle. If you run a consulting business in the B2B niche. Since the sales cycle may be long and complex, using pay-per-click ads may not be the best fit. Why? Your target customers may not be searching for results on search engine platforms like Google or Bing. And when they land on your page, they’ve got to get comfortable. Yes, making a purchase decision right on the spot may not necessarily work in these industries. 

To get the most out of your money, you’ve got to focus on other kinds of marketing like content marketing. This way, you get to acquire customers using a lead collection form. Moving on, you could focus your advertising budget on sponsored content or social media advertising. If your advert capacity is limited to lead collection and content boost, that’s okay.

How much do small businesses spend on advertising?

How much do small businesses spend on advertising? If you’re like most business people, you’ve probably asked the question – and there’s nothing wrong with that!

As a business owner, if you want to pinpoint how much a small business spends on advertising, then you’ve got to do some calculations and provide answers to these two questions.

What’s the worth of the average new customer in revenue, and how much profit do you generate from such a customer?

Let’s say the new customer is worth $400, and your business generates $100 profit on the customer. That is, you’ve got to generate a return of 4:1 return on ads spent (ROAS). That is, you’ve got to generate $4 for every $1 spent on ads. If not, you will not break even. Alternatively, you can interpret it as spending roughly $100 to acquire a new customer (the cost per acquisition or CPA is $100).

If your small business is generating $2,500 – $7,500 per month, then you’ve got to have a good ad budget.

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In a nutshell, if you want to spend wisely on your advert, then you’ve got to come up with a robust plan. Yes, plan your marketing and work the plan. The plan should include where you want your business to be seen and heard. What’s your most preferred marketing channel? Stick to it!

If you want to buy ads because others are doing it, then you’re in for a huge waste. It’s a waste of time, resources, and manpower. Do things that work for your business.

Well, it depends on the business total revenue, and the amount the business owner is willing to invest into advertising.

Nothing more, nothing less!

Yes, the amount is not fixed in stone.

Finally, don’t put all your marketing eggs in one basket. There are several other marketing strategies — advertising is a piece of the puzzle.

FAQs:

Does advertising work for small businesses?

One of the primary objectives of a business is to offer a solution to the problems of its customers. And these solutions could be in the form of products or services. But first, they’ve got to attract customers. To do that, they need to spread their message — and if you’re speaking of spreading a message, then advertising comes into play.

Yes, advertising works for small businesses. It’s a sure way that helps in attracting new customers, selling more products and services, and ultimately boosting the profitability of a business. In the long run, advertising will help small businesses grow in size.

How much do small businesses spend on advertising in the USA?

A significant amount of small businesses in the United States pay for digital advertising — and these businesses spend an average amount of five hundred and thirty-four dollars ($534) each month.

That’s not all…

According to certification globe, a good chunk of these businesses plan to keep (or increase) their advertising budget in the following twelve months.

Conclusion

You probably know that businesses exist to offer a solution to their customers. Speaking of solutions, it could be in the form of products or services. To do that, the business owner has to be found — and getting found means running converting adverts.

Adverts are arguably the most important aspect of your business marketing. Yes, a lot of things go into it, and one of such things is ad budgeting.

There is no clear-cut rule when it comes to budgeting for your advert. As a small business owner, you need to know what works for you. Who are your target customers, and what are your competitors doing? Answers to these questions will go a long way to determine how your budget will be.

As a point of emphasis, there is no rule on how you should spend on advertising. If your current advertising strategy is generating results for you, then you should stick to it or try an alternative method to see which works best for your small business.

If you desire to dive into digital advertising, then you’ve got to pay close attention to the return on ads spent (ROAS). This way, you get to know what it takes to acquire a new customer.

Enough said!

Now you’ve got a good grasp of how much small businesses spend on advertising, how much are you willing to spend on advertising for your small business?


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