Know Your Numbers:
How Much Startups Should Set Aside for Business Marketing
When Airbnb first started, the company was facing a major problem: they had a lot of listings, but not many people were booking stays. To fix this, they allocated a substantial portion of their budget towards targeted online advertising and campaigns aimed at building their brand and establishing trust with potential customers.
The result was explosive growth: within a year, Airbnb went from a small start-up to a global phenomenon, with millions of users and listings all over the world. This early investment in marketing laid the foundation for Airbnb's success, and serves as a powerful reminder of the importance of investing in marketing, especially in the early stages of a company's growth
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Why Startups Fail (and How They Succeed)
There is an estimated 31.7 million small businesses in the US alone (as of January, 2023). But the success rate of startups is notoriously low, with only 10% of startups succeeding each year. Though there are many reasons start-ups fail, a key element of survival is the proper blend of marketing and advertising in the mix to make just enough noise to be seen in ever-crowded consumer markets.
One of the most important decisions you need to make when getting up and running is how much to set aside for marketing. And take it from Airbnb (valued at $75.15 Billion), it's worth every penny. In today's cut-throat marketplace, a well-executed marketing campaign can mean the difference between success and failure.
Startups vs Established Business Marketing
What Airbnb figured out was that while the general rule of thumb for marketing dollars for an established company is often between 6-10% of the total budget, start-ups have a much heavier lift when it comes to breaking into markets or, in some cases, creating an entirely new one. In today's highly competitive marketplace, a well-executed marketing campaign can make all the difference between success and failure. Depending on the product or service, the approach to entering the market, funding sources, and total expenses, start-ups can look to spend anywhere from 25%-50% of the total budget on marketing.
However, with limited resources (as is the case with most start-ups), it can be difficult to determine how much to allocate for marketing and how best to use those funds. In this blog post, we will explore the importance of investing in marketing for startups, how to set a marketing budget (what percentage is necessary for each situation), and tips for maximizing the effectiveness of your marketing efforts.
Marketing is a Must
With limited resources and a whole bunch of competition, startups need to make a big impact with their marketing efforts. It is imperative to establish your brand's position in the market, differentiate from the competition, and build trust and credibility with potential customers.
And, of course, all of these efforts are focused on driving sales. By reaching the right people with the right message at the right time, you can effectively convert prospects into paying customers. And, of course, this is key to the growth and success of the business. For most start-ups to stay in business, they need to cover costs for the first couple of years and be profitable by year 3 or 4. So finding the right balance is essential to make that happen.
The Cost of Marketing
Marketing today is easier and more cost-effective than ever before, meaning that businesses can reach a wider audience for less money. Even just a decade ago, marketing campaigns were more expensive due to the lack of technology and the need for more traditional methods of advertising. With ever expanding digital marketing options for start-ups, the playing field has vastly expanded. However, although online marketing for start-ups is cheaper in terms of costs, the money businesses are spending is not necessarily going further.
Market saturation is one of the main reasons why marketing costs remain high despite the lower cost of doing business. Since starting a business is easier than it ever has been, it has become increasingly difficult to stand out from the crowd.
Additionally, the rise of ad blockers has decreased the effectiveness of online marketing campaigns, as consumers are better able to ignore ads they don’t want to see.
The Who, the How and the What of Marketing
According to Embroker3, the number one reason why startups fail is due to misreading market demand, which is found in 42% of cases. However, data from Forbes suggests that a lack of investment in marketing could also be a major contributor to failure. In fact, this was the "top reason" reported by Fortune: "They make products no one wants". As Einstein once said, and it reigns true for business planning, “Strive not to be a success, but rather to be of value.”
So first things first - you need to understand who you are marketing to (and what value you are providing) before you even get started. Investing time and resources into comprehensive market research can mean the difference between thriving or throwing in the towel (and throwing good money after bad).
For instance, B2B marketing for startups will look very different than a straight-to-consumer campaign. Mapping out the available demand, market viability, the demand for the product, the features your target group is looking for, and the best way to position and price will be crucial.
Second, how you plan on funding your business can impact the percentage you can allocate to the budget. If the venture is VC-backed, there may be an expectation of a marketing spend as high as 50%. If you’re working with a small business loan or your own cash, you may need to make do with less. And depending on your overhead and other expenses (employees, rentals or leases, supplies, etc.), that could be a much smaller number.
And lastly, what you plan on doing with that allocation will affect how much is necessary to get off the ground.
Beyond researching and planning, there will be any mix of the following needed to round out your campaign:
Digital Marketing for Start-ups
Social media marketing: Utilizing the power of social media to reach your target audience, share content, and engage with customers.
Content marketing: Creating content such as blog posts, videos, podcasts, and other multimedia to engage your audience and create brand awareness.
Email marketing: Sending engaging emails to potential customers to drive sales.
Influencer marketing: Leveraging the power of influencers to reach a larger audience and create brand awareness.
Paid advertising: Utilizing paid ad networks such as Google Ads, Facebook Ads, and LinkedIn Ads to reach more people and drive sales.
Search engine optimization: Optimizing your website content and design to increase organic traffic from search engines.
Traditional Marketing for Start-ups
Trade shows: Representing your business at trade shows and exhibitions, and networking with potential customers.
Networking: Participating in local and online networking events to meet people in your industry and build relationships.
Public relations: Establishing relationships with the media and publishing press releases to generate awareness.
If Not Now, Then When?
Using some or all of these tactics, identify if the market can stand another competitor if your budget can compete with larger, more established businesses (with much deeper marketing pockets), if it is possible to create a new market with new products or service offering unlike any other out there, or if a more niche-focused marketing and distribution strategy would be effective.
How Much Money at Each Stage
As is probably clear by now, there's no one-size-fits-all number, as the amount a startup should allocate toward marketing will vary based on several factors, including the size of the business, the stage of the business, and the marketing goals. But here is a stage-by-stage guide to what will be necessary:
Before you officially launch your business, you'll want to set aside funds for pre-launch marketing activities (and this assumes you’ve already completed a full market research and business plan). At this stage, you’ll probably be building a website, creating brand assets such as logos and packaging, and developing a pre-launch marketing plan. For a pre-launch startup, it's recommended to allocate at least 5-10% of your total budget to marketing efforts.
Once your business is officially launched, it's time to ramp up your marketing efforts. As an early-stage startup, you'll want to focus on establishing brand awareness and building a following. This may include developing and executing a content marketing strategy, investing in search engine optimization (SEO), and leveraging social media to reach your target audience. For an early-stage startup, it's recommended to allocate 10-15% of your total budget to marketing efforts.
As your business begins to grow, you'll want to continue investing in marketing, with a focus on expanding your reach and generating leads. This may include investing in paid advertising, attending trade shows and events, and developing a referral marketing program. For a business in the growth stage, it's recommended to allocate 15-20%, but this could vary a good bit depending on market competitiveness and saturation.
As your business continues to grow, you may reach the expansion stage, where your focus shifts to expanding your reach and scaling your operations. At this stage, you'll want to continue investing in marketing, with a focus on maintaining brand awareness and staying top-of-mind with your target audience. For a business in the expansion stage, you’ll want to stay relevant with an allocation of 20-30% of your total budget.
Get the Most Out of Your Marketing Budget
A conservative estimate for start-up marketing costs overall is about 20-30%. Aim for maximum efficiency wherever possible to get the most out of your budget, no matter the size. Follow these tips to ensure you’re getting the most out of your marketing budget:
Set Clear Objectives
Before you start spending money on marketing, it's important to define your goals. What do you hope to achieve? Do you want to increase brand awareness, generate leads, or drive sales? Having a clear understanding of your goals will help you determine which marketing activities are worth your investment.
Focus on What Matters
With limited resources, it's important to focus your marketing efforts on the activities that will have the biggest impact. This may mean investing in search engine optimization (SEO) or social media advertising, rather than traditional advertising methods like print or radio ads.
It's essential to track the performance of your marketing efforts so you can see what's working and what's not. This may mean using analytics tools to track website traffic, monitoring social media metrics, or using tracking links in your email campaigns.
Automate Where Possible
With the rise of marketing automation tools, it's easier than ever to streamline your marketing efforts and save time and money. Whether it's automating email marketing funnels, social media, or advertising campaigns, take the time to set up well-planned automation so you can free up your time (and your time is money) to spend on other initiatives and tactics.
Leverage Free Resources
There are many free or low-cost resources you can use to support your marketing efforts. This may include leveraging social media platforms like Instagram or Twitter, using free marketing tools like Canva or Hootsuite, getting involved in SCORE.org (which offers free business training and educational resources, or taking advantage of free events and webinars to learn more about the nuances of your market, how to better assess your business’s needs, and just about anything you might need to learn to get your start-up on the road to success.
The Bottom Line on Budget
When it comes to startup marketing budgets, it's important to strike a balance between investing enough to achieve your goals and not overspending to the point where it negatively impacts your bottom line. By understanding the importance of investing in marketing, determining your marketing goals, and following the tips for maximizing marketing effectiveness, you can ensure that you're spending your marketing budget in the most effective way possible.
For startups, marketing is an investment in the future of your business. Without a strong marketing strategy, it can be difficult to reach your target audience, generate leads, and build relationships. That's why it's so important to set aside a meaningful portion of your budget for marketing activities (ideally 20-30%) and to focus your efforts on the tactics that will have the biggest impact on your business. Whether you're just getting started or you're looking to optimize your existing efforts, following these recommendations will help you get the most out of your marketing budget and achieve your marketing goals.