Budgets can be tight when you‘re running a small business, and knowing where to cut and where to spend in order to achieve your business objectives can be a high-stakes decision.
One near-mandatory expense for small business owners is marketing campaigns. Whether you opt for traditional advertising (TV commercials, radio advertising, direct-mail campaigns), digital marketing (search engine marketing, social media marketing, banner ads), or in-person awareness campaigns (event booths, pop-up shops, roadshows), you must consider marketing costs among your core business expenses.
One of the most effective ways to maximize your marketing spend is to set—and stick to—a marketing budget. Even a modest marketing budget provides a structured way to invest in growth opportunities rather than relying on guesswork or reactive spending. A well-planned budget allows businesses to test and scale effective strategies—such as paid online ads that drive qualified traffic, or content marketing that can generate leads and enhance brand visibility through search engine optimization (SEO).
Here‘s how to create a small business marketing budget based on your business goals and the funds you have available. You‘ll learn how to allocate spending across channels, forecast return on investment (ROI), and track campaign performance to continuously improve your marketing spend.
Table of contents
Types of marketing expenses
When small businesses spend on marketing, they‘re often allocating advertising dollars to the following initiatives:
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Online advertising. Paid advertising on platforms like Google Ads, Meta, or TikTok to drive immediate traffic and sales.
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Search engine optimization (SEO). Costs for keyword research, content creation, and technical optimization to improve organic visibility.
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Content marketing. Blog posts, videos, and other media, designed to attract customers and engage a target audience.
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Social media marketing. Paid promotions, social media ads, influencer collaborations, and management tools for social platforms.
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Email marketing. Newsletter software, automation tools, and design services for customer retention and promotions.
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Affiliate and referral programs. Commission-based spending to reward partners or customers for generating sales.
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Traditional marketing. Paid ads on TV and radio, print advertising, direct mail, and in-store displays.
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Website development and maintenance. Design updates, landing page optimization, and UX improvements that enhance marketing efforts and drive conversions.
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Branding and creative design. Logo design, photography, high-quality product images for an online store, and ad creatives.
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Analytics and marketing software.Analytics tools that track performance, analyze digital advertising campaigns, and manage customer data.
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Public relations (PR). Press releases, media outreach, or partnerships to build credibility and brand awareness. This can also include reputation management professionals if a brand needs to rehab its image.
Factors that affect a marketing budget
When you do a marketing budget breakdown, you may notice some recurring factors that impact your marketing expenses and the scope of your efforts. Here are some of the most common factors that affect the average marketing budget.
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Business size and gross revenue. Larger companies or those with higher sales volumes can typically allocate a greater percentage of annual revenue to marketing.
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Industry and competition. Highly competitive markets often require higher ad spend to maintain brand visibility.
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Geographic location. Marketing costs vary depending on how populated an area is and whether the business targets local, national, or international audiences.
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Target customer. The demographics, interests, and online behaviors of potential customers influence which channels and budgets are most effective.
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Marketing goals. Whether the focus is brand awareness, lead generation, or conversions determines how much investment is needed.
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Sales cycle length. Longer sales cycles often require sustained campaigns and remarketing efforts, increasing total costs.
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Digital channels used. Some platforms (e.g., Google Ads or LinkedIn) demand higher budgets than others due to higher cost-per-click (CPC) rates or audience type. Google Ads charges different rates to compete for different keywords, which factors in as you allocate marketing dollars.
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Seasonality. Peak periods, such as holidays, may require short-term budget increases, as there‘s more competition for the same group of customers.
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Stage of business growth. Startups often spend more aggressively to establish brand awareness, while mature businesses may focus on optimization of their ad spend.
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Current market trends. Economic conditions, ad platform changes, and consumer spending habits can all impact your advertising budget.
How AI can impact a marketing budget
Artificial intelligence (AI) and machine learning (ML) have already made their mark on marketing. They‘ve optimized previously labor-intensive practices, lowering costs in the process.
Ecommerce expert Andrew Faris, founder of the direct-to-consumer (DTC) consulting agency AJF Growth, foresees many ways that AI will transform marketing budgets for businesses of all sizes.
“AI is just making a lot of things cheaper,” Andrew says on the Shopify Masters podcast. “The most obvious one of them is the cost of creative production. So, you can just write a lot of ad scripts and then record them with an AI voice to do explainer videos for your product.”
AI can also help marketers research their customers. “Something I‘ve seen people use that I think is really compelling is using OpenAI‘s deep research for customer research,” Andrew says. “It‘ll be like, ‘Hey, I want to understand who my customers are and think about how to talk to them more directly.’ So you give it your business info. You give it some competitors. You say, ‘Here‘s what I know so far about which ads are working, whatever. What can you tell me?’ And within five minutes, it‘ll give you a 10-page report about who your most likely customers are, who tends to shop in this category, and how you‘re priced compared to your competitors.”
Premium AI tools cost money. OpenAI‘s ChatGPT Pro costs $200 a month, but Andrew argues it‘s well worth it for a marketer on a budget. “Relative to the time cost, it‘s unbelievable,” Andrew says. “Especially compared to the cost of hiring a research firm.”
When you begin setting your marketing budget, keep AI tools in mind. The cost savings they provide might let you scale your campaigns in ways you hadn‘t previously considered.
How to create a small business marketing budget
- Establish your business goals
- Determine your budget allocation method
- Consider data from past campaigns
- Select your marketing channels
- Estimate costs
- Forecast your outcomes
- Implement your campaign and track its progress
The most sustainable marketing initiatives start with a carefully considered budget. Here‘s a seven-step approach for creating a marketing budget that aligns with your business goals and your incoming revenue.
1. Establish your business goals
Start by defining what you want your marketing initiatives to achieve—whether that‘s attracting new customers, boosting repeat sales, or growing visibility in your local community. Your business goals will guide which marketing channels and marketing tactics you prioritize, from online ads to social media posts.
2. Determine your budget allocation method
A good marketing budget often allocates a set percentage of total revenue to marketing. The exact figure depends on your size, industry, and growth stage, but the key is to create a realistic foundation before distributing funds across various marketing methods and projects.
3. Consider data from past campaigns
If you‘ve created and launched marketing campaigns before, look back at any data you may have collected. Metrics like engagement rates, ROI from online marketing, and customer acquisition costs can help you identify what worked in the past and what didn‘t. This helps you eliminate excess and unnecessary costs while reallocating funds toward high-performing channels.
4. Select your marketing channels
Choose a mix of digital and traditional marketing channels that best align with your goals and audience. Local businesses might focus on community partnerships and building a presence in local social media groups. Ecommerce brands could prioritize online ads, visibility in search engines, and email marketing automation as part of an integrated marketing strategy.
5. Estimate costs
Next, estimate how much you‘ll spend on each channel, including creative assets, ad spend, software subscriptions, and even day-to-day expenses like internet access and office supplies. This helps ensure a balanced, transparent approach to budgeting. Leverage a Shopify marketing plan template to assist you in this. If you have peers or mentors in the small business community, ask if they have a marketing budget template you can use for your own business.
Nik Sharma, known in business circles as The DTC Gu,y due to his success in advising direct-to-consumer startups, suggests a base ad spend threshold where you can see measurable impact and make data-driven decisions. “Something we get asked a lot is, ’o you have a prescription for how much money a business owner should spend on marketing?’” Nik says. “‘How much of my budget, regardless of where I am, should I be spending on my ads?’ My personal rule of thumb is a thousand dollars a day. That‘s the budget you should have.”
This doesn‘t mean every business owner will spend that much money, Nik explains on a Shopify Masters podcast. Some businesses may have a larger budget or need more to reach their target audience, while some may be able to run successful campaigns on $500 a day. “It really depends on what the product is you‘re selling, how much education is required, and how much that product costs,” he says.
Marketing is an investment in your business, and you‘re investing with the expectation that over the long run, you‘ll bring in more money from revenue than you send out via marketing expenses.
6. Forecast your outcomes
Model your expected return on investment—how many new customers or how much revenue you expect each dollar to generate. There are different ways to calculate ROI, all of which will help you get a concrete estimate of how much money you might make from an initiative. Such forecasting will help you prioritize the initiatives with the highest potential impact on overall marketing performance. For instance, local businesses may forecast a greater ROI from local community citations than they‘d get from influencer marketing.
Nik recommends looking at your customer acquisition cost as the determining factor for what you need to spend. If you‘ve got a higher acquisition cost (such as for a high-end product), you may need to spend more to make a sale, but each sale will be worth more. If you set a benchmark for what success looks like (say 50 products sold a week) and multiply that by the customer acquisition cost per product, you land on your marketing budget.
7. Implement your campaign and track its progress
Launch your campaigns and immediately begin tracking results against your goals. Schedule a regular (e.g., monthly or quarterly) review to compare your planned budget versus actual spending. This allows you to quickly discard underperforming marketing methods and pivot to those that are driving more total revenue. Over time, you‘ll be able to determine if you‘ve landed on an effective marketing strategy or if you need to reallocate your budget.
