How Much of your Start-up Budget Should you be Allocating Towards Marketing?
If you are just starting or planning to start a business, then you must have heard about how important effective marketing is. You have to realize that customer acquisition is one of the toughest parts of starting a business and you have to do much more to effectively build brand value. About 25% of all businesses use paid advertising and marketing to boost their sales.
The next question which comes in front of any founder is to decide how much of your budget should be allocated towards marketing? A lot of start-ups have a free-flowing expense plan, meaning that they cannot or do not have a strict rule of spending a certain percentage of capital on a particular sector, and this is not bad per se, on the other hand a free-flowing plan will give you much more fluidity in terms of where your money is going.
But I would still recommend figuring out an upper cap or a range within which you are comfortable spending on marketing. Let’s look at a few methods that businesses usually use to set their marketing budgets.
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WHAT ALL SHOULD YOU COUNT UNDER MARKETING EXPENDITURE?
Before we go on and look at the different methods of estimating a marketing budget. It is important to understand what all will come under your marketing expenditure. Yes, the social media marketing costs, SEO costs if you have hired a consultancy firm and ad campaigns will obviously come under your marketing budget.
But things such as website development cost, any design changes to your websites, any content writers you hire for your blogs, targeted pages, event sponsorships, trade shows etc. will also come under your marketing budget. For big or medium companies there are hundreds of things which can inflate your marketing expenditure.
This is one of the advantages that a young business will have, they can focus and excel using a couple of strategies and find out what is truly working for them.
This method is pretty straight forward, allocating a certain percentage of your total revenue towards marketing. But the real struggle here is to figure out the optimum percentage of your revenue to set aside.
There are two main factors which you should consider here, the total revenue of your business for a financial year and the age of your business. As the marketing budget is supposed to be a percentage of the total revenue, you should have an estimate of what that is going to be around.
A lot of economists suggest, and I agree with this, that you will need to spend a larger proportion of your revenue in marketing during the early stages of your business. This stage is also known as the foundation building years. This is the time where you need to build a brand image, brand value and it will be harder for you to acquire customers.
During the first 4-5 years of your business your marketing budget can range anywhere between 12-20% of your entire revenue. Keep in mind that this is just an average amount. Depending on the type of business you have, this number can easily go higher. As your business gets older this percentage can go down to about 6-12%.
But even when you have an already established business, some years the marketing expenditure might go up, so you need to take these unplanned changes into account. These surges in marketing costs can be due to a website overhaul or trying out a new marketing trend.
If you are just starting out with your startup then having an estimate of your potential revenue will be a bit harder. The next few methods might be more suitable for your needs.
As the name suggests, rather than allocating a certain percentage of your total revenue, you can just set aside a fixed amount which you are okay with spending on marketing. This method is most suitable for businesses in their first couple of years.
If you are dealing with a smaller budget, then you might only be able to invest in one or two marketing strategies so you will need to figure out which one suits your needs the most. This is where the next method will help you out.
Don’t worry about zeroing in on the correct strategy from the get-go, you will only figure this out through trial and error. The best way to start out is to set some goals about what you need the marketing to do. Do you want an increase in sales by a certain amount or do you want to increase your followers on any social media? Through this you can start working backwards about which strategy will suit you. You can learn more about such strategies here and you can further learn about how to implement them here.
RETURN ON INVESTMENTS
This is one of the most important aspects you need to keep in mind no matter if you are just starting out or if your business is already established. If you have a lot of budget for marketing, it does not mean that you can throw your capital at anything and everything. Every business has certain unique demands and different strategies will give you different results.
Once you have tried a couple of marketing strategies, check what’s the ROI on all of them. focus on the ones which are giving you the highest returns and try to divert more funds into those strategies. Take this situation as an example:
Let’s say you have a hardware e-commerce store, and you invest $100 on social media marketing and $100 on a SEO service like Adult SEO Co. Let’s say this $100 investment was made over a period of six months.
So, after six months, social media marketing increased your website traffic by 100% and the sales by about 10%. At the same time, SEO marketing increased your website traffic by 70% and sales by about 20%. For the sake of simplicity if every $100 invested in social media marketing generated an extra $1000 and SEO marketing generated an extra $2000 then it is clear which strategy you should be pouring extra capital into. You can learn more about how to improve you current marketing strategies here.
There are tons of marketing strategies out there, so make sure to go through all of them before deciding to give anything a shot.
Every business owner knows the importance of an effective marketing strategy and allocating the right amount of capital towards your marketing campaigns can make a huge difference. With the hundreds of different strategies available to businesses, any entrepreneur can easily get confused about which strategy to go for. There is a reason why marketing business has been growing at a steady pace of 22% in the US alone, businesses are realizing the need for effective marketing.
There are two major factors to take into account for any business, the age and the total revenue or the estimated revenue of the company. A startup can take two routes, either set up a fixed budget or set aside a certain percentage of the total revenue. Any business should also take into account the return on investment for different strategies they use so they can gauge which ones work for them.
Daniel Zuraw is the Director of Adult SEO Co (adultseo.co). He is very passionate about educating a wider audience about SEO. With over 12 years of experience in the SEO industry, he aims at educating a wider audience about the power or SEO and digital marketing.