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If you own a small business that’s in its initial growth phase, you know that every dollar counts. That’s why it’s so important for small businesses to set advertising budgets that align with their campaign goals. Specifying where your dollars are going can help you target the right demographic and select which forms of media to use. In addition, creating an advertising budget can help you assess your campaign results and pinpoint your goals going forward.

Identify your advertising goals


Before setting your budget, your business should set some long-term and short-term advertising goals. The first step to setting appropriate advertising goals is knowing and analyzing your sales funnel. The goal of marketing is to bring customers to the beginning of the sales funnel and have them continue until they make a purchase. You can align your marketing strategy with the section of the sales funnel you decide to target—awareness, interest, desire, or action. For example, you can use brand awareness campaigns to build your audience, create interest with targeted ads, build desire in your customers with new content, and prompt them to make a purchase with a call to action (CTA).

Close up of a desk with a pen, a calculator, and two folders labeled Budget and Marketing.

Know your target audience


Learning your target audience will ensure your ads reach the right people, or the consumers most likely to be interested in your brand and product. Once your small business knows its target audience, you can analyze their demographics to learn the best methods and places for advertising your goods and services. This means that your ad will only be shown to the people who you’ve determined are the most likely to make a purchase. 

Two hands holding a tablet showing the word Budget.

Know your operational costs


When setting an advertising budget, don’t forget to factor in all the operational costs of promoting your business. In addition to the funds you set aside for running the ads, other costs such as paying your employees for performing marketing tasks, third party or sponsorship expenses, and software subscriptions need to factor into your budget. The best way to set an accurate budget and stick to it is by being on top of these lesser-known payments.

Decide how fast you want your business to grow


Every small business needs to evaluate how quickly it needs to earn revenue. If your business is still growing, you may need to invest more money into your advertising budget to potentially get a higher return on investment (ROI) at a quicker pace. For example, businesses that are in their first five years typically spend more on ads than businesses over five years old. In general, young businesses invest between 12% to 20% of their revenue towards marketing. Some even use up to 40% of their total revenue on marketing campaigns. Still, if your small business has time to steadily grow and earn revenue, you might be able to make a long-term budget and spread your ad dollars over multiple years.

A board reading separate single words like ad campaign, budget, statistics, research, design, and content.

Research advertising trends


In addition to researching your competition, conduct research into the current marketing landscape to stay on top of current trends and to structure your advertising budget. Look at economic trends and gaps in the market that your brand could fill, and how the current technology is affecting the way customers shop. For example, are consumers using different methods to browse and make purchases? Are these consumers part of your target audience? If so, you may need to adjust accordingly.

Tools like the Microsoft Advertising Search Network can help analyze how your target audience is searching the web for relevant goods and services. These trends can assist you in deciding where to allocate your budget for the best ROI.

Review the advertising budget on a quarterly basis

Revenues, trends, and resources change, so your small business’s advertising budget might need to change as well. Review your advertising budget quarterly to adjust where necessary.

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To summarize, follow these seven steps when setting your advertising budget:

  1. Identify your short and long-term advertising goals by analyzing your sales funnel.
  2. Learn your target audience so you know which demographics to target for the best ROI. 
  3. Factor all operational costs into your budget for a more accurate figure. 
  4. Choose between the following advertising budgets: Revenue, competition matching, top-down, or goal-driven. 
  5. Decide how fast you want your small business to grow.
  6. Research current market trends to see which external forces will affect your budget. 
  7. Review your budget on a quarterly basis and adjust as needed. 
Microsoft Advertising for small businesses is here to help you accomplish your company’s goals. Let us further assist you in growing your small business by using your advertising budget efficiently. Whatever budget you’ve set, you’re in control—you only pay when a customer clicks one of your ads. We also provide hands-on support to help you optimize campaigns and boost performance around the clock. 

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