How Much Should Your Startup Spend On Marketing?
So, you’re a startup company, and you realize a need for marketing. Now what? Many startup brands devote so much effort and funding into product development that by the time they’re ready to begin sales and marketing, there’s just not a lot of energy left to tackle this area of need.
Hopefully, if you’re here, you’re such a good planner that that’s not the case for you. If that is you right now, don’t worry, it’s a completely normal place to find yourself, and it’s so understandable. Without a product, there’s nothing to sell.
If you’re new to marketing, understanding it is key to understanding how much it’s going to cost. Without a grasp on its purpose, it’s hard to put a price tag on good marketing. You may be surprised to learn that it is not a one-and-done process.
As with product development, incorporating marketing into your business plan is a continuous and ever-changing process that changes with your business and goals. So, let’s talk about marketing.
What is marketing?
Marketing is, at its core, a planning process and the execution of the distribution of information and ideas about a brand, a product, or a business to facilitate the exchange of goods and services to meet individual and organizational goals objectives. Your product meets an unfulfilled demand that a consumer has, and marketing is how you communicate to the consumer that you are ready to meet their needs, how we’re going to do it, who you are, and why they should care.
Marketing had existed for hundreds of years before it even had a name or an entire field of study. The original way products and services were marketed to consumers still exists today, and you’ve already experienced it. The original marketing channel was word of mouth. If the other villagers say you’ve got the best-baked bread, the consumers who need bread know to come to you.
The ability to print dominated the field of marketing until the 1900s, but the next 100 years and its advancements blew up marketing and led to the development of its own industry. The major players for marketing were the radio, television, the internet, and cell phones.
Use the right marketing channels
Today, we have a more melded approach to marketing that encompasses several and sometimes all the available channels in a blended method to increase a company’s marketability. For this reason, a company isn’t just a company that sells products anymore. Companies have personalities and values and are regarded with more feeling than ever before.
Consumers hold their companies to a higher standard than ever before, so prioritizing proper marketing is crucial to success. This may seem daunting, but there’s good news. All this advancement also means that consumers, the ones you expect and the ones you never thought of, are so easily accessible.
Marketing is everywhere. Consumers carry ads around with them and check them regularly. Consumers think of these devices like cell phones, but cell phones are smart enough to market to consumers on a personalized level. And they will give out their information willingly to increase the ads they receive for products they like. So, if you’ve got a product, marketing can help you find your consumers and help your consumers find you.
A marketing budget is all the costs related to advertising, public relations, promotions of events or sales, and anything else that communicates your brand to consumers. You may have an idea of how you want to begin marketing your product, or you may be at the starting line. Either way, cost is probably on your mind. So, how much should you be spending?
Marketing experts, and even the U.S. Small Business Administration, seem conflicted in their recommendations. Some of the common factors for determining your marketing budget include:
- Gross Revenue
- Net Profit Margin
- Company Age
- Market Competitiveness
The U.S. SBA recommends that if your sales are less than $5 million a year and your net profit margin is between 10-12%, then you should be spending roughly 7-8% of your gross revenue on marketing. As a startup, that may be out of the realm of possibility.
Consider what's best for your business
Honestly, the actual amount most startups and small businesses only allocate around 2-3% of revenue to marketing. Recommendations from marketing experts can range anywhere from 1-10% of revenue, so it may be a safe bet to land around the mean at around 5%.
As with any business decision, you have to consider what is best for your company in your specific market. For instance, a company with a more niche product where the market is without a lot of comparable competition may not need to spend as much as a company vying for customer attention in a heavily saturated market. The nature and location of your business may create special circumstances that should be considered when you’re allocating your budget.
It is worth noting that the youth of a startup company may require a larger budget allocation, Think of it as foundational work. You may need to devote a quarter of your revenue to marketing to bring in your initial target audience. This may seem risky to a new business owner, but there is a risk in not marketing effectively to begin with as well.
A lot to consider, but setting a budget gives you guidelines to avoid overspending. If you haven’t begun to bring in revenue in your startup, apply your chosen percentage, like the fair-minded U.S. SBA recommendation, of 7-8% of revenue to your business plan.
Got a budget: now what?
As an entrepreneur and startup company, your main job is selling your product. Selling a product can require a lot of your time and money, but if you don’t sell your product, a lot of your accomplishments won’t mean much else.
Sales expenses can include salaries, incentive bonuses, overhead, administrative costs, etc. When we were going over marketing and the modern era advancements, we touched on a few marketing channels that can reassure you after all this discussion of budgeting and expenses.
A lot of the available marketing channels aren’t as costly as marketing channels of the past. Newer affordable marketing channels are so commonplace that you may have implemented them already. Some examples of affordable marketing channels to consider as a startup:
- Social Media Channels: Twitter, Instagram, Facebook, LinkedIn, etc. “Like and follow for more.”
- SMS Marketing Channels: Short messages to consumers via text
- Email Marketing Channels: Email signatures/tags, banners, newsletters, etc.
- Websites: These are your own websites: blogs, FAQ, About, etc.
- Pay-Per-Click (PPC) Marketing
- Videos and Youtube: Explaining your product visually and providing related content on video platforms
If you have implemented any of these marketing channels already, the costs associated with these fall under your marketing expenses, so that may change the view you have of your marketing budget. They’re also worth exploring as options as you develop your marketing plan.
Market the modern way
Modern marketing has become a much more fluid practice. Multiple channels can point the way to your product. Blogs and social media can point to your product page. Video platforms can lead to pay-per-click marketing and back to your product. Text messages can deliver information and product updates to your potential target audience in real-time. Startups have remote access to advertising to people in a way that would have cost modern-day millions even just 10 years ago.
The methods of digital marketing listed above can work in tandem with each other and provide measurable results to let you quickly learn who is interested in your product. As you grow, you can add and remove marketing channels like these as they are needed, and you can incorporate other more traditional methods of marketing, like print, into your approach to create a residual feedback loop where all roads lead back to your product.
Congratulations on your startup business. You should be proud of all that you have accomplished as you developed your product and prepared your company for the world. As you enter the market and prepare to SELL, SELL, SELL, remember to make room in your budget for the expenses of marketing your product.
We love the expression that it sells itself, but you know it most certainly does not as an entrepreneur. It will require a lot of hard work and, yes, money to market your product to consumers who need it and might not even know it exists yet.
But, you’re embarking on this journey at a time in history where reaching out to people all over the world is easier than it ever has been before, and if you are willing to learn, you can employ some of the most cost effective marketing tactics that have ever existed.