How to Manage Your Startup Marketing Budget
Creating your startup marketing budget can feel like taking a wild stab in the dark, yet it is crucial to the success of your small business. How you manage your this budget will determine the way new customers discover your business.
If your startup has not been making consistent revenue, thinking about your future marketing budget can be disconcerting. Rather than thinking of marketing costs as an expense, they should be considered an investment. Your marketing costs will result in a quantifiable benefit in the future. The adage “you need to spend money to make money” couldn’t be more true for a startup.
Not sure where to start? There are steps you can take to make sure your startup's marketing budgeting process is as effective as possible.
How much should a startup spend on marketing
While there is no hard and fast rule on setting a startup marketing budget, the suggested way is to take a percentage of actual or projected gross revenue. The percentage you apply will depend on the startup’s size, age and industry.
Startups need to invest in marketing until market share is established. During this brand-building phase, a typical startup budget spends 20% of revenue on marketing efforts.
Once the business is operational and generating sales, the U.S. Small Business Administration recommends budgeting 7-8% of gross revenue for marketing expenses. This marketing budget benchmark assumes the business’ revenue is under $5 million, and its net profit margins are between 10% to 20%.
Considerations when allocating your marketing budget
There are factors that will influence how much your business spends on marketing. Your marketing budget is likely to fluctuate according to the current market trends. According to the June 2020 U.S. CMO Survey, marketing budgets have risen to 11.4% of revenue, up from 8.6% before the COVID-19 pandemic. This likely reflects a prioritization of marketing strategies to maintain brand awareness and customer retention throughout this challenging economic period.
Marketing costs by industry
Marketing spend also varies across industries. From a CMO survey conducted in February 2020, companies in banking, technology, and communications industries spent the most on marketing as a percentage of revenue, while mining and construction, transportation, and manufacturing spent the least. We recommend reaching out to other CMOs to get a sense of appropriate benchmarks for a startup in your industry.
Creating an annual marketing budget
Now, let's think about the phasing of your startup marketing budget throughout the year, which will be impacted by your sales budget, sales cycle and seasonality of your business.
Your startup sales cycle
It's important to remember that marketing spend today will not mean increased revenue next week or even next month, particularly if the business operates B2B. Any leads created from marketing efforts will take time to be processed and vetted as a qualified sales opportunity, then it’s up to your rockstar sales team to close the opportunity. This marketing and sales life cycle differs from business to business; however, it takes about six months to complete on average and will need to be factored into the budget.
Seasonality of your marketing plans
Does the business experience a spike before the end of the fiscal year or during the holiday period? Perhaps you see a boost during the back to school rush or the change in seasons. Rather than distributing your marketing budget equally throughout the year, you may want to allocate more to the months just prior to your peak sales periods.
Marketing budget categories
Once you have an overall figure to work with, it’s time to break your budget into key categories you’ll need to spend on, aligned with your marketing plan. To start, think of the types of marketing campaigns you’ll be running, and the platforms and assets you’ll need to get them done.
Here are some of the line items in a typical startup marketing budget:
In addition to your marketing team, factor in the cost of recruiting, onboarding, training, and remunerating sales consultants. Your labor budget could also include hiring freelancers or contractors, which will allow you to scale up flexibly during peak periods.
This category encompasses all the marketing systems and tools you’ll need on a day-to-day basis. This may include marketing automation tools, social media platforms, and scheduling tools (including Facebook, Instagram, and LinkedIn). It will also likely include video conferencing and webinar software, email marketing platform subscription, graphic design software, and website set-up and maintenance costs.
Branding & design budget
You’ll need to create marketing assets to establish a unique first impression in your customer’s mind—from logo design and visual identity to brand positioning and story, business cards, sales collateral, infographics, and website design.
Product marketing budget
This may include conducting market research, establishing product positioning and messaging, gathering customer feedback, and creating a go-to-market strategy.
Content marketing & search engine optimization budget
Your startup marketing budget should allocate for the design and creation of content to be delivered, including blog posts, case studies, videos, and images. You may also need to engage search engine optimization (SEO) consultants and utilize SEO tools.
Paid advertising budget
Include ample marketing spend for social media ads, blogger outreach, and pay-per-click (PPC) advertising on Google, which includes Google Adwords, display, and retargeting ads. If relevant for your business, you may want to carve out a section for traditional advertising channels such as print, direct mail, billboards, transport advertising, TV, and radio ads.
Public relations budget
Consider whether you’ll spend on PR placements, press releases, and award submissions.
Factor in attendance at trade shows and exhibitions, networking events, sponsorship of events, or perhaps promoting and hosting your own events.
Other marketing expenses
Inevitably, there will always be other costs and unforeseen expenses. This might include travel expenses, gifts and samples, and client entertainment expenses.
How to track your startup marketing budget
You’ve set a marketing budget, and you’ve decided how you’re going to spend the money—kudos! The planning process itself is invaluable in creating a financial roadmap for your team. Still, if you don’t regularly track spending to budget, it’s easy to lose focus on your overall objectives. By closely monitoring your marketing costs, you’ll know exactly how much budget you have available to spend at all times. This way, you’ll be able to avoid overspending, or even underspending and wasting allocated budget.
Now, how do you track your forecast marketing budget to actual spending? Tracking investments in marketing activities can be challenging, especially if you need to rely on the finance team to provide spending reports. So what’s the best way to track your marketing spend?
Here is a summary of our marketing budget best practices:
Create a marketing budget to actual marketing spend tracker
Create a month by month marketing budget tracker to show key categories broken down into line items, budget allocation for each category, actual expenses for each category, and a cumulative total. Here is a useful startup budget tracker template from Hubspot.
Reconcile your budget regularly
Marketing spend is often spread across business units, teams, time periods and geographies. Accurate tracking, classification, and accounting for marketing expenses are essential to create a clear picture of your startup financial performance.
Aim to set up three meetings each month to track and adjust your marketing budget if necessary:
- Beginning of the month: compare your spend from last month to the expected budget for this month.
- Mid-month: note any unusual categories that may need to be accounted for differently.
- End of month: review expenses and all invoices to make sure all stakeholdders have the same information.
Don’t be alarmed if there are differences between your budget and your actual expenses.. There may be discrepancies due to accounting rules. For example, software costs may be split across teams, or amortized instead of expensed. If you sign a contract with a freelancer this month but pay them at the end of their contract next month, you need to report it as an expense this month when their work commences, rather than when you make the payment.
Track costs vs. performance
When you closely track spending against your actual performance, you can gain insight into what marketing efforts are working well and which are not. This detailed performance analysis will help you identify which marketing tactics are performing, which need to be tweaked, which aren’t working for your business at all. You’ll need to carefully track marketing spend to ensure your return on investment figure is accurate when assessing your marketing campaigns’ returns.
Adjusting your startup marketing budget over time
It’s expected that your first startup budget will be inaccurate—but you can learn and make adjustments along the way. The very nature of a startup is a rollercoaster of unpredictable roadblocks and unexpected opportunities. You’ll have to roll with these and adjust your marketing budget accordingly.
It’s crucial to track marketing spend on a regular basis so you can adjust spending mid-month or seek the necessary approvals for any additional expenses required for the remaining period. Make sure to keep a close eye on categories that easily run over budget, including digital ad costs, contractor hours, and events. Also, be mindful of hard to track expenses, such as pre-paid software and non-monthly invoices that need to be allocated across months accordingly.