# Startups

How to Determine Optimal Marketing Costs for Startups?

Red Rocket TeamSep 23, 20246 min read

Key Takeaways Do I Need to Invest in Digital Marketing for My Startup? Common Pitfalls in Startup Marketing Spending Factors Influencing a Startup's Marketing Budget Marketing Budget for Tech Startups Without Revenue How Much Should a Startup Spend on Marketing? How to Calculate Your Startup Marketing Budget? Break Down of Digital Marketing Costs for Startups Tips on Optimizing Your Startup's Digital Marketing Spend

Some small startup owners decide to avoid various types of advertising in order to save money and focus all their efforts on production. Is this right or wrong decision? People who refuse to spend budget on promoting their own products are very likely to fail to grow from a small business to a large company. Just look at the Coca-Cola Company and the way they advertise. Of the 55 billion servings of drinks (other than plain water) that people drink in a day, 1.7 billion of them are Coke. Coke's red and white logo is recognized by 94 percent of the world's population. Even with these incredible numbers, this company continues to actively promote itself in digital marketing.

Imagine then how important marketing is for companies that are just planning to open. The right advertising campaigns and other methods of promoting the company will help reduce the risk of failure and loss of investment. This is why you should start by analyzing and calculating the marketing budget for the startup. This article will tell you more about the main factors that influence the formation of marketing costs for a startup business, as well as pitfalls and important tips that any small startup owner should know about. How to Determine-min.jpg

Key Takeaways

Any startup, regardless of the type of business, needs to be present in digital marketing to make a name for itself in the market.
Experts say that the best solution is to allocate up to 15% of revenue every month for digital marketing promotion.
Making a marketing budget for startup requires a whole lot of work to increase the chances of success.
If your firm is just at the startup stage, it is recommended that you invest as much as possible to make potential clients aware of you.

Do I Need to Invest in Digital Marketing for My Startup?

As mentioned above, every company today needs digital marketing, especially if we are talking about newly established startups. Obviously, there are companies in the world that spend almost no money and time on marketing. For example, Bugatti, a company that produces exclusive cars, does not emphasize digital marketing. This is due to the incredibly high cost of their cars and the potential perception that their customers don't spend time on social media or searching websites.

Another case where you may not need marketing is if there is a complete lack of competitors in the market. However, practice shows that this is simply not possible today. That's why, in all other cases, you should include digital marketing in your «must-have» list of things to do, along with manufacturing, logistics, and other areas that may be in demand in your niche.

Since digital marketing is a generalized term, we suggest you consider what kinds of things this trend can cover. Generally speaking, the term came into use a few years ago, and before that, companies were just using marketing for promotion. Digital marketing can encompass many tools and methods to attract the attention of potential customers to a company, increase the number of customers, and increase brand awareness. Websites, SEO, social media, paid online advertising, and more are all used for this purpose.

Common Pitfalls in Startup Marketing Spending

Startups are new companies that are just getting the right look and shape. Many things depend on digital marketing, such as whether your startup will grow into a large firm. Wise people learn from other people's mistakes, so we've compiled common pitfalls you may encounter with startup marketing spending.

No clear planning. One of the common mistakes that many startups make is the absence of a proper plan for digital marketing. Creating a specific marketing strategy is crucial, even if there are few resources for advertising purposes.
Giving up after the first failure. Another common pitfall is abandoning certain marketing strategies just after a single trial or failure was observed. Campaigns need time to be fine-tuned before they can produce tangible outcomes. The most important things that can be derived are persistence and learning from the data.
Ignoring tracking of key metrics. Also, the lack of strict measurement of other important metrics, such as KPI is a glaring mistake. You should understand that without measuring marketing ROI, startups may continue investing in marketing campaigns even though they are no longer profitable.
Spending too little on marketing. Most startups owners still make efforts to reduce their spending on marketing in order to invest more on development. However, without awareness, the most promising products simply fail to get a footing. It is crucial to dedicate the right amount of resources to this direction.

Remember that you should approach responsibly and seriously when you decide to launch a startup. Assemble a «dream team» and distribute all responsibilities among people you trust and who believe in the success of this idea.

Factors Influencing a Startup's Marketing Budget

Certainly, no one can specify the amount of money you will need to spend for your company just by looking at you. To determine how much money you will need to invest in digital marketing, you must analyze several factors. Read on to discover what factors go into creating a digital marketing budget for a small startup.

(01)
Your Company's Investment Opportunities

First, the opportunities defined in the company’s investment plan influence the extent to which it is possible to invest in marketing activities. If a significant amount of cash is available for growth into new markets or new products, then there will be an increase in the advertising, social media, and other customer acquisition costs.

(02)
Scope of Business and Competitors

Second, a startup should consider its field of activity and main competitors when defining the structure of the marketing budget. Competitive benchmarking with similar target consumers is wise to gain an appreciation for realistic budget levels associated with anticipated revenues and expenses. Businesses that compete in mature industries may decide to spend more on building brands and advertising.

(03)
Marketing Strategy and Key Tools

Of course, budget planning is influenced by the general marketing concept and the tools of preference that a startup adopts. Where online tools such as SEO and paid search ad are bound to demand more commitment than adoption of printed materials and trade show among others. The distribution of the budget to the right combination of marketing channels as per the expected revenues and the phase of the business is crucial.

Marketing Budget for Tech Startups Without Revenue

Unfortunately, there are startups that fail to jump past the break-even point at first and don't generate enough revenue. As an example, consider a tech startup creating new storage software. It will be very hard for such a business to compete in this niche, as there is a giant like Microsoft working here.

However, lack of revenue doesn't mean stopping marketing activities. In that case, your business will definitely suffocate. You should be able to plan the right budget for those startups even without generating enough revenue. For example, you can cut some expenses in other areas because marketing is a priority goal at this stage. You should also try to find a source of funding for your startup. It could be private investors, banks, venture capital funds, or even your own relatives. Convince them that your idea is promising as a future profit-making endeavor.

How Much Should a Startup Spend on Marketing?

It is estimated that established business entities need to dedicate 10 % of their sales revenue for digital marketing to sustain the market share. However, when dealing with startups that are just starting, it is a different story altogether.

Since a startup does not have any recognition with the target market, it has to spend a significant amount of money on a relatively unknown brand and product or service. Some experts recommend startups set up as much as 40% of their income into marketing during this onset period.

Unlike established businesses, startups do not possess a loyal customer following and company recognition, and as such, they need to constantly push their products or services within industries that may already have set giants. An effective use of funds is to dedicate them to the trial of numerous small-scale digital marketing campaigns and see which ones are more effective in terms of reaching out to the target consumer audience. While expending such an amount on marketing may seem ludicrous, it is usually the only way to do everything possible to make a product that still has not been fully accepted by the public a success. The strategy is to stay as fluid and purposeful as much as possible to get the most out of that initial and essential marketing investment.

How to Calculate Your Startup Marketing Budget?

A lot of things depends your target audience and what niche you are working in. For example, statistics show that startups from the construction industry spend the least on digital marketing. Startups from the education industry, on the contrary, allocate the highest amount of money to the marketing budget - about 18%. Typically, business owners use metrics calculation methods to figure out the optimal amount to allocate to marketing. Unit economics, margin and understanding the sales funnel are calculated.

What to do if you don't even have these indicators? For example, you have recently started to run a business or have invented a startup and want to test its MVP. In this case, you need to research similar or competitive projects in parallel and calculate such economics “in a vacuum.” That is, you need to make a simple business plan for a small period (1-3 months). The research will help you understand the average market conversion rates, which can then be used for calculations in the familiar table.

To calculate your budget correctly, you should think not about how much money you need for advertising, but how much sales you need to get from this channel for stable business growth. By gaining statistics on seasonality, optimizing conversion rates, cost of sales and other expenses, you will be able to make your business more stable, and budget planning - more accurate and applied.

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Break Down of Digital Marketing Costs for Startups

Sure, the set of methods and tools for digital marketing can be different for a particular business. You can use different ways that you can attract the attention of potential customers. However, there is a classic set that is recommended for small business owners and startups. Here's what it consists of and how much you should spend on these promotional methods.

(01)

Creating a website. It all starts with creating a quality website, as this is the basis today for any company. A normal website can cost several thousand dollars.
(02)

Creating a mobile app. Mobile apps cost more compared to websites, so you have to make sure that this investment is worth it. It may require you to spend more than 10 thousand dollars.
(03)

Search Engine Optimization (SEO). When your website is already up and running, it is recommended that you start with search engine optimization. This method will help you attract customers who use a search engine. SEO specialists can ask for $500 to $1,500 for a month of work.
(04)

Email marketing. Email marketing budget depends on scale and ranges from $500 to $5,000 per month. SMM. The services of SMM specialists can cost you from 500 to 2000 dollars on average. Of course, the final price depends on the set of services, the particular specialist or the agency.
(05)

Pay Per Click Ads. The budget you will have to spend on paid online advertising depends on your goals and desires. For example, you can run ads with a budget of $100. However, it is recommended that you spend at least 2 thousand dollars a month on this method.

If your budget is too limited, you should emphasize on cheaper digital marketing tools. For example, you can create a branded blog and write articles that focus on the queries of your target audience. This will help you attract more organic traffic without wasting even a dollar.

Tips on Optimizing Your Startup's Digital Marketing Spend

Beginners in business often make many common mistakes that can be fatal. We have gathered some useful tips for you so that you can properly allocate and spend your digital marketing budget.

Don't be greedy. At first, it's best to invest your profits in digital marketing. Of course, you don't always have to spend everything you earn. We're talking about the first three months, when it's very important for your startup to make itself loud in the market.
Use different promotion channels. You shouldn't focus only on social media or website. The more methods and tools you use, the more chances you have to reach the entire target audience.
Check the results of digital marketing. You should be worried if you are attracting less than 100 new customers per month. In that case, you need to revise your strategy and increase your budget.

Always be oriented and pay attention to what effects you are getting from digital marketing. There is no need to worry if your results are not going well at first. As a rule, over time, the effectiveness of your marketing campaigns will increase as potential customers start to learn about you.

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Final thoughts

As you may have already realized, digital marketing for a startup today is not a wish but a necessity. There are so many examples of well-known big companies that have become successful thanks to the right marketing strategies. The component of success is to budget with the right ratio of investment and expected revenue. To summarize, we can safely say that new startups should spend at least 30 percent of their total revenue to increase their chances of future success. When your company becomes bigger and more stable, you can reduce these expenses to 10-15 percent.