You have an incredible, perhaps revolutionary business idea, and you can’t wait to start changing lives after your launch. There’s just one problem: Your startup has limited capital, and while you might want to devote all of it to acquiring the technology and staff your business will need to provide its valuable services, the truth is that you need to spend some money on marketing to ensure that customers and clients know your startup exists.
So, how much of your startup budget should be focused on marketing? The answer, frustratingly, is that there is no hard and fast amount that startups must spend on marketing to achieve success. Instead, it depends on a number of important factors — such as:
Your Startup Annual Revenue
It should go without saying that you don’t want to spend more on marketing than your business will make in the coming year. While it will most likely take three or four years for your business to turn a true profit, you should be able to draw in some revenue during your first year in operation. What’s more, you should be able to estimate with some degree of accuracy how much revenue your startup will generate even before you launch. Estimating revenues is critical for enticing investors, acquiring loans and building reasonable budgets.
Of course, if your startup has already launched, you should have some record of your monthly revenues to use in your calculations. You may look into your previous year’s revenues or extrapolate your current annual revenue based on the months of data available to you.
Your Business’s Age
Building a brand from zero is extremely difficult and requires a higher level of investment than maintaining brand visibility. As a result, most budgeting experts recommend that brand-new companies earmark a higher proportion of their annual revenue for marketing purposes, as it is most essential that younger businesses efficiently gain visibility amongst their target audience.
If your startup is between one and five years old, you should expect to spend between 12 and 20 percent of your annual gross revenue on marketing efforts. Though this might seem a daunting sum, it should cover much of your initial branding as well as the online and offline marketing efforts your business needs to get off the ground. You can talk with marketing experts about online vs offline marketing strategies to determine the best way to spend your initial marketing capital for lasting success.
As your startup ages, its demand for marketing should decrease. After a few years, your company should have established a certain level of market share, and your target audience should be able to recognize your brand. If you have already reached this point, you may be able to decrease the amount of budget you dedicate to marketing to between 6 and 12 percent of your gross annual income.
Your Business Model
Not all types of businesses benefit from marketing to the same degree. A business targeting consumers, for example, is much more likely to see greater returns on marketing investment than a business providing products and services to other businesses. Thus, how you determine your startup’s marketing budget should factor in whether your startup is a B2C or a B2B. Typically, B2Cs will end up on the higher end of the ranges described in the previous section — closer to 20 percent of revenue for younger startups and around 11 percent for older businesses. In contrast, the average B2B only spends between 2 and 5 percent of their revenue on marketing, though this number may be higher in the earliest stages of startup operation.
Again, you should consider working with a marketing expert to determine which marketing channels will benefit your business based on your target audience. The more channels required to reach your audience, the higher your marketing budget should be.
Inarguably, there are other factors that you need to consider when building your marketing budget, such as the density of competition in your field, the length of your startup runway, the expertise of your marketing team and more. However, you should be able to use the above figures as a rough guide for jumpstarting your marketing efforts and bringing your startup success.