How much should a startup spend on advertising? Every year, hundreds of thousands of new businesses start, and most ask that very same question.
Marketing and advertising are necessary to build awareness of your brand new business and to attract customers. If you set your budget right and use the right strategies, you’ll be able to survive the odds of failing within the first few years.
Do you want to learn how much you need to spend on marketing and advertising? Read on to find out how you can figure out how much you can spend and how to create your marketing budget.
How Much Should a Startup Spend on Advertising?
The answer to this question depends on who you talk to. Some guidelines say that businesses should spend about 6% – 8% of your revenue on advertising. Most businesses spend only 1%.
How can you set your budget if you don’t know what your revenue will be? Here are some factors that will determine your marketing budget.
How quickly do you plan to scale up your business? In other words, how fast do you want to grow and how much capacity does your business have to handle customers?
For example, let’s say that you’re a coffee roasting startup with the capacity to roast 20 pounds of coffee a day. You can only handle so much business, so you should have a smaller marketing budget. An extensive advertising budget could generate demand, but if you can’t fulfill that demand, then customers will go elsewhere for coffee.
On the other hand, if you can handle 5 times the business, then market your business accordingly. If you want to scale up your business quickly and open more locations, then franchise marketing would be a good way to go.
Pricing of Your Product
The pricing of your product will also determine your marketing budget. Let’s say that you sell a $7 widget. To be profitable, you will rely on volume to sell enough widgets to make it worthwhile.
A business that has a premium product or service will be able to afford to spend more on advertising because each sale could be worth thousands to a business.
Measuring Cost Per Lead and Lifetime Value of a Customer
You’re going to have to do the math to make your marketing strategy effective and set your budget. You need to know how many people you need to touch to turn them into a customer.
How many people will convert into a lead? How many of those leads will become customers? How much is each customer worth?
If you spend money to connect with 100 people, and 12 of them become leads, your conversion rate is 12%. If you close 2 out of those 12, your close rate is almost 17%.
If you know these numbers, it will be much easier to figure out what your marketing budget should be.
Going back to the $7 widget. You might find that the person who spends $7 on a widget now will spend $500 on other products and services. That will give you a bigger marketing budget because that customer is really worth $507 as opposed to just $7. That’s the lifetime value of the customer.
The higher the lifetime value of a customer, the more you should spend on marketing. Startups need to take all of these factors into account. It can be hard to because you don’t have a track record yet.
The best thing to do is to estimate these numbers. As you roll out your marketing strategy, you can make adjustments along the way.
Creating Your Marketing Budget
Now that you know some of the factors that you must consider in creating your marketing budget, how can you form your own marketing budget?
Take these 3 steps to outline your marketing spend.
1. Develop Your Marketing Strategy
You’ll want to start by figuring out your marketing strategy. This is the overall goal that you want to achieve when you invest in marketing and advertising.
Do you want to build brand awareness for your startup? Do you want to create a highly targeted campaign that focuses on sales early on? These are different strategies that will require a different set of tactics and a separate marketing budget.
A brand awareness campaign would rely on broad campaigns, such as television, billboards, and display advertising. A B2B campaign that uses content marketing to generate sales will be on LinkedIn and use PPC advertising alongside content creation.
2. Write Your Marketing Plan
Your marketing plan will detail how you will accomplish your strategy. This will have details about your target market, the specific goals marketing and advertising, and the tactics.
As you write your plan, you’ll need to do additional research to estimate the costs of advertising. Consider this your dream list of tactics that you need to have to reach your goals. Don’t exclude something because you think you can’t afford it.
3. Bring Your Plan Back to Reality
Now you have to bring your plan back down. Unless you have a capital investment to accomplish everything on your marketing and advertising list, then you’re going to have to scale back.
In this step, revisit your marketing strategy and goals. You’ll then identify the marketing tactics that will give you the most bang for your buck and accomplish your goals.
Marketing and Advertising for Startups
Marketing and advertising are essential for every business. For startups, marketing and advertising are crucial to set the company apart and let customers know that there’s a viable option in the marketplace.
How much should a startup spend on advertising? It’s not an easy question to answer because it will be different for every business. It depends on your capacity to handle business, how much each customer is worth, and how quickly you want to scale up your business.
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