Navigating Small Business Marketing Budgets: How to Optimize for Better Results

Most small businesses are at a loss on how to best allocate their marketing budgets. The number of choices can be overwhelming, and it’s difficult to know who is reputable and who isn’t.

Many businesses need help to allocate their budgets. With so many marketing channels and agencies, spreading funds too thin is common. This practice often results in more money going to agency fees than advertising spend.

Below are five strategies small businesses can follow to optimize advertising spend. They will help small business marketing teams optimize advertising budgets to drive revenue and maximize ROI.

5 Ways to Optimize Small Business Marketing Spend

1. Don't spread your marketing budget across multiple agencies.

Small businesses' marketing budgets spread across multiple agencies create huge inefficiencies. The percentage of media dollars to agency fees becomes lopsided.

If you have a larger budget, about 15% of the total dollars goes to pay the agency. But, if you have a limited budget, this ratio shifts. As a result, the agency uses only a small fraction of the spend on actual ads. You are worsening this effect by paying management fees to multiple agencies.

Leveraging the entire budget in one place means a lower percentage of dollars going to management fees. You’ll find yourself paying more in fees than you would working with one agency.

Digital Marketing Strategy: Look at the data to see which agency drives leads and manages expenses best. Then, consolidate your advertising budget with that one agency to optimize spending.

2. Consolidate the advertising budget on marketing channels that drive revenue.

Imagine you have a marketing budget spread across channels like Facebook, Instagram, video, and SEO. In that case, you need to allocate more to one platform to make an impact.

With a limited budget, not much data will come from each channel. Minimal data will make it difficult to exit "learning mode" and impact revenue. It's difficult to make good decisions with limited information. The websites where your ads will be published need data to let systems optimize ad delivery.

Digital Marketing Strategy: You can consolidate your digital marketing strategy in three steps.

Use Google Analytics to see which marketing channel is most effective at driving revenue.
Combine marketing spending instead of using a haphazard approach.
Get scalable learnings, and then diversify your channels.

3. Understand the cost of lead acquisition and how much to pay for a lead (or cost per order / ROAS if you’re an eCommerce business)

Before launching your advertising campaign, do some math. Figure out how much you can afford to pay for each lead or order. This information helps marketers achieve better results.

You should base this information on your expected margin and close rates. For example, if you are selling a service, it's helpful to understand four things:

What percent of your calls or leads are qualified
What percentage of qualified leads become closed sales
Your average costs per sale
Your typical job size or average order value

If you’re an ecommerce business, you’ll want to base the allowable cost per order on your margin. Remember that dollars go in the bank, not percentages, so think through what you’re willing to spend. If you're a business that has worked to get customers to return, consider your lifetime value for that customer.

Let’s say your first sale is $500, but you expect that customer to return again later in the year and spend another $700. You could base your allowable cost per order on $1,200 instead of $500.

When enough data is in one place, systems can optimize and reach a target cost for each lead. It's easier to know if you're meeting goals or your agency is doing well with understanding acquisition costs.

If you drive leads but pay too much for them, you may quickly put yourself in a bind.

Digital Marketing Strategy: Identify a cost per lead or return on ad spend (ROAS) target. Share this figure with your marketing agency. This allows them to optimize your spending according to what is profitable for you.

If you focus on driving leads, recalibrate once you understand how your new leads convert from marketing efforts. If you're used to word-of-mouth leads, advertising leads will likely perform differently.

The same concept applies to ROAS on eCommerce sites. If your average order value has changed due to this new advertising, revisit the targets you are giving your agency.

4. Make sure your agency knows how many leads you are getting and which leads are converting into customers; Or Share order & revenue data

In addition to driving leads from channels like Facebook, Instagram, and LinkedIn, tracking whether these leads turn into customers is also important.

Ensure that tracking codes and pixels are in place to identify leads first. Then, follow them through the conversion process to communicate back to your team about who is becoming customers.

Digital Marketing Strategy: Confirm tracking code pixels are in place for all marketing channels. Then, follow those leads through the customer journey and identify where your most customers are coming from.

5. AVOID Focusing too much of your marketing budget on top-of-funnel traffic

When most of your advertising budget is allocated to awareness, you likely need to engage with lower-funnel traffic to impact sales.

Spend your marketing budget on targeting people ready to buy from you. You can find these people by looking at their internet searches. They might have found you through organic search or paid Google ads.

Before deciding where to spend your money, identify which stage of the buyer’s journey your ad audience is in. While social media awareness ads may help, focusing on lower-funnel traffic will drive more revenue.

Digital Marketing Strategy: Allocate at least half of your advertising budget to lower funnel traffic. This spending will prove more valuable than investing in awareness stage marketing and will help generate more ROI.

It's Not Just How Much the Budget Is; It's How You Spend It

To succeed in digital marketing, it's not just about how much you spend but where and how you spend it. Splitting your budget across too many agencies and channels can reduce its effectiveness.

By focusing on the right strategies and understanding the value of each lead, you can make the most of your marketing budget. Regularly reviewing and adjusting your approach is critical if you want to stay on track and reach your goals.

Consider these tips for how small businesses can use different marketing channels.

Paid search: Google paid search ads appear at the top when someone searches. These are usually the most qualified source. If you're bidding on the right keywords, you'll get in front of people looking for your service or product.
Social media ads: If your company has multiple sites or your brand has numerous companies, be careful how and when you advertise. Social media advertising can be effective. But you also may spend too much on awareness campaigns.
Take advantage of other sites: Depending on your customers or audience, better choices may exist than social media ads or paid search. Or, you may need to run ads in locations besides those channels. Marketplace sites like Instacart or review sites like Yelp or others may be an excellent place to start. Once you find where your audience goes for information, you'll want to be listed there. If there’s an option, purchase some ads on the site. Spend your first dollars aiming to be where people are eager for the service!
Reduce the number of cooks in the kitchen: If you can, shift your marketing money to one company instead of several. It saves money and makes communication easier. You'll have more consistency and room to grow.

Antonella P.September 26, 2023