When it comes to online marketing there are two major questions that are on small business owners’ minds, how much and how to spend it.

First, I will address the BIG question, HOW MUCH?

As a small business owner, you have probably struggled with determining the correct marketing budget for your company. One best practice is to determine your marketing budget based on a percentage of sales (real or forecasted).

Using that method a good range is 8-15% of sales, unless you are introducing a new product or service, which could increase the budget to as much as 50%.

Determining the marketing budget is easier with an existing company because you can use historical sales data to validate any forecast sales. However, a start-up sales forecasting (projecting) requires a true “magic act”. Good luck with that, because many start-ups never reach their projected sales, even when being very conservative.

Basing your marketing budget on a percent of sales (and sticking to it) allows you to have greater control since you can vary it based on sales revenue.

So, an example is $2 million in annual sales, would require a marketing budget of $160K-$300K to spend across all your marketing efforts.

That sounds like a good plan, but the reality is always different. The SBA defines a small business as an enterprise with less than 6 million in sales and less than 100 employees (depending on industry); I wager that most of small business sales are much lower than that. My point is that EVERY marketing dollar is valuable and your marketing budget would probably lie in the 3-5% of sales range. Therefore, a better example is $1 million in annual sales, will project to $30K-$50K, so spend your budget wisely.

Now, that we have discussed, how much, let’s move on to the next question. WHERE do we spend our marketing budget?

The traditional marketing “mix” has been broadcast (television and radio), hardcopy (newspaper, magazine, yellow pages, etc.), mail (direct and email) and online (Internet). The mix is necessary because unless you have a very specialized niche, with very limited media coverage, no single medium can provide enough prospects.

Current marketing mix statistics supports 34% spent on broadcast, hardcopy gets approximately 33%, direct mail roughly 22% and online getting a low 11%.

Now for a quick reality check, a large  secretenemyhideout.com majority of small businesses can NOT afford broadcast marketing. Consider this an inexpensive radio advertisement placement is $200 for a 60 second one-time slot, and about $2,000 for production (setup) costs. Counting repeated advertisements for a 3-4 week period, your radio ads would cost $3,000-$6,000 per week at a minimum. Television advertisement, even local cable, starts at $4,000 for a thirty second slot even in a small market. Ouch!

So, lets take our 50k marketing budget and change the mix, leave the same 54% to hardcopy and direct mail, and “get on the train” (of online marketing) before it leaves the station.

Your online marketing should include search engine marketing (free and paid), banner advertisement (on others websites), social media (Twitter, Facebook, LinkedlIn and others) and even online classified advertising (Yellow Pages, Craigslist and eBay).

By far, the best place to focus your marketing budget is in the FREE space. Make a concentrated effort to obtain and maintain high page placement on search engine result pages (Google, Bing and Yahoo) and you will see a lower impact on your overall marketing budget. You can do the needed work to make this work or hire an online marketing expert to facilitate the process. The goal is to gain first page (top ten) ranking in search engine results since over 89% of all “click-through” traffic came from top ten search engine results.

On the other hand, spending in Search Engine Marketing (also called Paid Search or PPC), deserves consideration. Paid search definitely has its place because as an advertiser, you are PAYING for first page placement. It definitely is a good fit if you have a time sensitive offer (seminar) or if you want to expedite your product awareness. Research has also proven that psychologically, people believe that a company that is willing to pay for search engine placement has more creditability. A quick tip; if you achieve top ten search engine placement for your website, immediately drop your paid search activities. After all, you have achieved your goal of first page, so why continue to pay. If you select this option, make sure you monitor your spending since you can potentially burn though your budget quickly, since PPC is impression or “click through” based.