Marketing | May 6, 2013

Establishing a Local Marketing Budget

Marketing Budgets for Local Business Owners

Establishing a marketing budget for a local business can be challenging. Many small business owners who have not yet hired a local marketing firm struggle with establishing a marketing plan and budget every year. In many cases, a small business owner starts a business expecting to grow, yet often times struggles with defining and committing to a marketing budget.

Creating a Local Marketing Budget

When a small business owner starts a business hoping to grow to $2.5 million dollars in annual revenue, often times he or she may not know how to achieve this goal – especially when the cost of local marketing is so volatile.  So let’s walk through a quick and simple way to determine what it might cost you to market your local business each year.

Let’s start with one of the most important numbers to know – the size of your opportunity.  For instance, let’s assume that there’s roughly 500,000 homes and that your average client is worth $5,000, meaning that the service that you provide to them is usually $5,000 in revenue. With that number alone, you can pretty easily calculate that you’ve got a $2.5 billion dollar opportunity in your market area. However, a couple of things come to mine.

How often do your clients and future clients need your product or service?

If you happen to be a remodeling contractor in Dallas TX for example and the average home in is remodeled once every 10 years,  then that number would decrease to $250 million a year. So if you set your target to say you want to become a $2.5 million dollar business then you would naturally need 1% of that market opportunity in order to achieve that.

How much do you spend on marketing when you don’t have the budget for your End in Mind?

Very few small business owners start their local businesses with large budgets.  In this particular case, if you were starting your business and expected to be $2.5 million and had the capital to support it, you would spend around $20,000 per month to start (just less than 10% of your annual goal).  At the same time, you have to start somewhere and be willing to commit to your plan, so creating a business plan supported by a strong marketing plan is critical to the success of small businesses.

Many small businesses target around 10% of revenue to local marketing.  So in this case, if you were already a $2.5 million business and wanted to stay competitive, around $20,000 per month is not a bad budget.  That doesn’t mean you always want to be at 10%.  If you have been in business for over 20 years and have a strong brand in your local market, you may need 5% or less to stay competitive.

One way to look at it is on a scaling model as you grow your local business.  In some cases your marketing budget may start out very aggressive around 20% of revenue for the first few months. Over time you’ll continue to scale back, so in this particular example let’s say that you actually had your business to a million dollars a year, and you were still trying to get it to $2.5 million a year.  The idea here would be to scale the business from the million dollars, so in essence you would be spending about $10,000 a month which is $120,000 a year as 12% of revenue to continue to grow your business to that $2.5 million number.  In other words, you have to be more aggressive until you reach your destination.  Once you do, then it is about improving the results of each marketing avenue and keeping up with how your clients prefer to communicate.

Once you’ve established a budget, it is important to communicate with our team and whoever else is helping you with your local marketing – possibly a local marketing firm to help guide you. The better everyone is at understanding who and how to communicate with your target audience, the better your business will be and the better the return you’re going to get.  Again, for additional  information on establishing a local marketing budget or if you need a local marketing firm to help you with your business, call Social180 at 469-420-0180.