Marketing strategies, just like any other business asset, are best when diversified. The problem is, the more comprehensive your marketing playbook, the more difficult it can be to gauge how much you’re spending vs. how much you’re making. That means you need to optimize your marketing budget if you want to make your business as profitable as possible.
A well-planned budget ensures your resources are allocated effectively, helps improve ROI, keeps you on track to reach your business goals, and can help you see what’s working and what’s not. In this blog, I’ll show you how to optimize a marketing budget for small businesses, calculate ROAS, avoid the sunk cost fallacy, and more.
How to Create a Marketing Budget for Your Small Business
At its essence, a smart marketing budget is about investing money to hit your goals. Naturally, this doesn’t work if you don’t know what your goals are. Start here…
Define Marketing Goals
You want to have SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals. Clear objectives help you determine how much to invest in each marketing channel and guide your decision-making process.
Your marketing budget should align with your broader business growth objectives. If expanding market share or entering a new geographical area is your focus, allocate resources accordingly.
Understand Your Target Audience
Knowing your audience is key to making the most of your marketing dollars.
Your research should include:
- Demographics
- Preferences
- Behaviors
Where are your buyers and sellers spending their time? What social media platforms do they use? How much do they make and what are their biggest problems?
Increasing your understanding will help you choose the right channels and create a focused real estate marketing plan that resonates with your target clients.
Analyze Past Marketing Performance
Reviewing previous ad spend and campaign performance is critical for creating an effective budget if you're running ads. Identify what worked well, calculate ROAS (more on this below), and determine areas where improvements can be made. Avoid falling into the sunk cost fallacy—don’t keep investing in strategies that aren’t delivering results just because you’ve already spent money on them.
What Are Normal Marketing Expenses for Small Businesses?
Expenses vary based on your overall marketing strategy, but most agents will end up spending on certain things such as a CRM, specific AI tools, open house essentials, an email marketing distributor, and SEO tools.
Here are some of the most common:
- Digital Marketing: Social media ads, pay-per-click (PPC) advertising, email marketing campaigns, and SEO services.
- Traditional Advertising: Print ads, direct mail campaigns, and event sponsorships.
- Tools and Software: CRMs, AI, design software, a video editor, automation tools, and analytics platforms.
Take a good look at your content marketing calendar and see what tools and expenses are involved in each.
What Percentage of Revenue Should Be Spent on Marketing?
Many agents would say to allocate 5–10% of your gross commission income to marketing but in a market like this, 10-15% might give you a greater ROI.
Remember, those who go hard on marketing in down markets are the ones who thrive when things speed back up. And they’re starting to speed up now, which means you need to be even faster.
If you earned $100,000 in GCI, consider how much $15,000 spent on strategic marketing could earn you.
Never go over what you can realistically afford. Your marketing budget is just one factor of your life that you need to budget for. Taking out of your savings is not a sustainable strategy.
Use the Tom Ferry Business Plan Template to create a budget for your entire business and track your spending.
What Is ROAS?
ROAS stands for Return On Ad Spend, and it’s a key metric for helping you determine the effectiveness of the digital ads you’re running.
How Do You Calculate ROAS?
The ROAS formula is Revenue from Ads ÷ Ad Spend = ROAS.
ROAS Example: If you spent $1,000 on ads and generated $5,000 in revenue, your ROAS would be 5. This means you earned $5 for every $1 spent on advertising.
No matter what kind of marketing you’re running, you MUST be tracking the ROI, but it’s especially true for digital small business advertising.
Tracking the ROAS of your real estate social media marketing will help you reallocate your budget for better results.
What is Sunk Cost Fallacy?
Essentially, the sunk cost fallacy is the idea that businesses (and people) will continue investing in things simply because of the money and effort they’ve already spent. "Well, it's too late to turn back now, heeuhh!"
If you’ve poured money into an ad campaign that isn’t generating leads, it may be tempting to put more money into it instead of redirecting your budget to something else. Don’t do that.
It’s similar to the IKEA Effect, which states that you’re more likely to keep a dresser or a bookshelf because you’ve put in the effort to assemble it.
I don’t want to say too much here because this topic deserves its own blog, but I will say that this is a major killer of not only real estate lead generation but also management and leadership.
You must know when to hold 'em and when to fold 'em.
The Best Way to Create Your Marketing Budget
Your marketing budget needs to be in line with your overall marketing strategy and work to improve it instead of constraining it or scattering focus.
The best way to do this is with our Marketing Budget Template inside the Tom Ferry Business Plan. This will help you break down exactly what marketing channels you’re using and what you’re gaining from each, and help you to separate your fixed and variable costs.
A Marketing Budget Example
Please keep in mind that this is just an example, and I’m not saying that this breakdown is right for you!
In this marketing budget example, our agent has allocated $15,000 to a fully-rounded year-long marketing strategy.
- Digital Advertising: $6,000 (40%)
- Google Ads/PPC: $3,000
- Target high-intent keywords like "homes for sale in Tuscon."
- Social Media Ads: $3,000
- Focus on Facebook and Instagram Ads for lead gen and retargeting campaigns.
- Content Marketing: $3,000 (20%)
- Video Marketing: $2,000
- Professional listing videos, market updates, and community spotlights.
- Blog & SEO: $1,000
- Outsource blog posts and optimize your website to attract organic traffic.
- Local Branding: $2,250 (15%)
- Direct Mail: $1,500
- Monthly postcards to farm neighborhoods (e.g., Just Listed/Just Sold, market stats).
- Community Sponsorships: $750
- Partner with schools, sports teams, or local events to increase visibility.
- CRM & Lead Nurture: $2,250 (15%)
- CRM Subscription: $1,200
- Use tools like Follow Up Boss, BoomTown, or KVCore to track and nurture leads.
- Email Marketing: $1,050
- Monthly newsletters and drip campaigns via Mailchimp or Constant Contact.
- Professional Photography & Design: $1,000 (7%)
- High-quality listing photos, social media graphics, and custom branding materials.
- Networking & Client Retention: $500 (3%)
- Client Events/Gifts: $500
- Host a small appreciation event or send personalized gifts to top clients.
Monthly Expenses Breakdown:
- Digital Ads: $500
- Content Creation: $250
- Local Branding: $187.50
- CRM & Email Marketing: $187.50
- Photography/Design: $83.33
- Networking/Client Retention: $41.67
Build a Marketing Budget That Fuels Your Growth
Creating a marketing budget isn’t just about crunching numbers—it’s about strategically aligning your resources with your business goals to achieve sustainable success.
Marketing is an investment. You spend money in order to make more back in return.
Tens of thousands of agents will tell you that coaching is the highest ROI investment you can make in your business. Having a professional coach help you craft a winning marketing strategy and budget and implement them is absolutely invaluable.
Make this the year you take your finances to the next level. Schedule a business growth evaluation to learn more!