Covid-19 has been ravaging the global economy for months.
In such an unforgiving climate, splurging on marketing isn’t an option. At the same time, you don’t want to under-invest. You could compromise product/service quality and undermine consumer trust.
This is to say budgeting is a tough balancing act that takes time to master. The good news is you don’t have to use the trial and error approach, which is both ineffective and costly.
We’re going to tackle the question of how much should a startup spend on advertising. To deliver the answer, we’ll look at industry averages and examine best practices.
Here is how to break into an industry without breaking the bank in the process too.
Checking Out the Benchmarks
When developing a budget, there are no hard rules to abide by.
Decision-making hinges on a variety of factors specific to your business case. That said, it helps to observe sample business budgets and industry averages for guidance. They give you a general road map for navigating the crucial early stages.
One sound recommendation for new companies is to allocate 12% to 20% of the gross revenue to marketing. This is more than what established companies should spend and it’s clear why.
Startups need to make a name for themselves. It’s vital for them to establish strong marketing fundamentals and jump start marketing campaigns. These fundamentals come in the form of brand pillars, such as website, branding, and social media.
This is an investment in their future, a chance to gain traction and take off.
Once the systems and tools are in place and campaigns running, startups can afford to scale back a bit. Somewhere between 6% and 12% of gross revenue should do the trick.
And in case you don’t have any revenue yet, fret not. Simply commit to spending a small amount ($1,000) on marketing every month. Increase the amount gradually as you go.
Putting Things Into Perspective
As we’ve indicated, you don’t have to follow the aforementioned numbers blindly.
The big industry picture has to be augmented with a host of other factors. So, before committing any resources, consult your business plan. In particular, ponder overarching goals and go through financial projections.
A total number of sales or sales forecasts are vital pieces of the puzzle, as they directly impact your gross revenue. Remember this figure is revenue earned before deduction on wages. You can use online calculators to work out the exact numbers.
Furthermore, if you have a sales funnel, observe your marketing expenses through that lens. This helps you identify tactics and tools that make sense for your audience.
Next off, make sure to research your competitors. See how many big and small players are around. Study their marketing/advertising campaigns, target customers, and other nuts and bolts.
If you’re making your way into an untapped market, you can put the foot off the pedal. In other words, it’s not necessary to spend like there is no tomorrow. You can for, instance, secure high-volume ad keywords for advertising at a great price.
Conversely, piercing through the noise of competitive markets always consumes more resources.
Breaking the Numbers Down
Once you have a bird’s eye view of your marketing plan and budget, do the following.
Break the cots down into specific areas of expenditure. Again, there aren’t any strict rules when it comes to budget design. You just need to cover a few key bases.
We’re talking about the following:
- Market research
- Marketing technology
- Process automation
- Asset production
- Paid advertising
- Unexpected costs
Distribute your funds across categories and see if there’s anything left. Notice you don’t have to go all-in and fuel every single marketing facet. There’s time for that.
Bear in mind, however, it’s seldom a good idea to gloss over some areas. Market research is a prime illustration of this point because it lays the groundwork for everything that comes later.
You also can’t expect any results without tech tools in your arsenal. And free tools aren’t really the most robust and feature-packed ones available. You simply have to spend some in order to earn customer attention and money.
Focus on essential resources that forward your marketing goals and business priorities.
Tracking and Optimization
The final step is to tie marketing spend to specific deliverables.
Key performance indicators (KPIs) are the glue that holds the two together. They help us keep spending in check and confirm that our efforts yield desired results. They also remind us that budgets aren’t set in stone - they inevitably change over time.
Some common KPIs are:
- Web traffic
- Product-market fit
- Conversion rates
- Click-through rates
- Social media engagement rates
- Customer acquisition cost
- User retention
This list is non-conclusive, and there are certainly other metrics worth tracking. You probably want to keep an eye on those connected to your sales and revenue.
The bottom line is this: Add a limited number of relevant KPIs. That way, you can avoid spreading analytics resources too thin.
Finally, we would urge you to experiment with different approaches and figure out what works for you. Make sure to also track overall marketing ROI and fine-tune your budget based on the findings. Monitoring can be done on a daily, weekly, monthly, and annual basis.
Stay vigilant and quick on your feet!
How Much Should a Startup Spend on Advertising? Now You Know
The answer to the dilemma of “how much should a startup spend on advertising” isn’t cut and dried.
The best way to proceed is to do your homework and study the lay of the land. Namely, take into account everything that makes your position unique. Embrace a data-backed approach to budgeting and set up a tracking system.
Align spending with your goals and revenue streams. Adjust the budget according to fresh pieces of insight and business intelligence. Be ready to spend more initially in order to prime your marketing cannons.
Following these steps, you should be able to avoid the common pitfalls and make the most of your marketing dollars.
Don’t hesitate to contact us if you need help taking your game to the next level. It’s time to reach and delight your target audience.