How to set a startup marketing budget
One of the most frequent questions that I get asked is when should I start spending money on marketing, and how much? Don’t think that you HAVE to spend, especially when you first start, but don’t fear it if and when you can. All companies that grow like crazy spend money on marketing, however it’s driven by an obsessive focus on the customer and the product, rather than an extra thing that’s attached on. It’s wired into the DNA of the business. By ignoring marketing until it’s too late you risk hitting a brick wall and, quite possibly, failing. Your starting point should be to: a) ‘bake’ marketing into your product and overall experience, and b) build a platform of customer engagement through content and social interaction. If you do these 2 things effectively you’ll start to generate traction and make any subsequent spend much more efficient in amplifying your message.
Start by defining your goals
Your marketing budget shouldn’t merely be based on just what’s left over once all your other business expenses are covered, nor should it be an arbitrary pot. When planning your budget, you need to look at the results you want to achieve and how much it will cost to achieve them. Be specific and focus in on your core business drivers rather than ‘vanity metrics’. You can spend huge sums of money buying clicks only to discover that they don’t translate into paying users. Getting visitors to your site is only the first step – you need to figure out what you want those visitors to do and whether the traffic you’re getting translates into your goals.
Once you’ve determined your desired outcomes, start modeling what activities and channels will get you there. Get as granular as possible and try to determine the different conversions that you can expect from each platform and channel you’ll be using. If you don’t have direct experience of these yourself, speak to others (ideally in a related sector) to gain an idea of what results they’ve seen. Remember, this is merely a plan and as such reality will differ. Your required spend will also vary depending on your industry sector, size of business and growth phase.
Test, track, measure, optimize
Before committing significant resources, start small. Initially test spend in specific channels to establish which work, drive return-on-investment, and move you towards your ultimate goals. You can then focus spend on the areas that deliver maximum return and double-down. According to KISSMetrics, “57% of startup marketers are not basing their marketing budgets on any ROI analysis.” Without understanding ROI you can’t optimize your resources and will end up quickly burning cash reserves. Test marketing platforms, channels, messages, creative executions, formats, placements, and so on. You should revisit your marketing budget over time based on the results that you achieve and consequently realigning it to your goals.
Expect the unexpected
There will always be hidden costs that you aren’t necessarily expecting, so try to identify and factor these in up-front. Consider production, distribution, agency fees, licenses, employee time, etc. It’s always a good idea to add in a buffer for things that crop-up unexpectedly or new opportunities that may arise. This will help you to stick to your planned budget and avoid the risk and temptation of overspending frivolously.
On top of this, always keep a pot for experimenting. To avoid optimizing your activities to a point of stagnation where you aren’t driving further growth, you need to try new things and push the boundaries. Where these work apply further resources; where they don’t, try something different.
Once you get an idea of what it will cost to achieve your goals, you have to ask yourself if you can afford this, or if you have to raise more capital to fuel your marketing. Your ‘budget’ should not be fixed and inflexible but rather scalable to optimize growth and ROI. Marketing spend must be approached rationally and scientifically; it’s not a gamble. The Startup Genome report identifies that 74% of startups fail due to premature scaling (Startup Genome Report v1.1 March 2012), one of the key factors of which is spending too much on marketing too early. On the other hand, where you establish that your spend is generating positive ROI, you can look to invest further to drive growth. In this scenario beware that the returns from specific activities diminish over time and as you increasingly penetrate your audience (there may also be a seasonal effect).
Spending money on marketing and advertising is not a short-term game. To make it effective it takes time to build a foundation and then to optimize through testing, measurement and tracking the overall conversion of acquired customers. Yet it is also key to amplifying your message and taking your proposition to new audiences in order to scale.