Marketing your startup: how much does it really cost?

By now, you likely have realized that owning a business is expensive. When you are starting out, it can be difficult to know where to allocate funds and how much money should be spent. While budgets are not universal from business to business, there are some guidelines to follow. These guidelines can ensure your budget is in the same ballpark as your competitors.

As you begin to draft a business budget, remember that each department should have their own individual budget. Finding the right budget for each department will be essential in ensuring that business is financially healthy.

How to craft the optimal marketing budget for your startup

There are many resources online that can help you cultivate the appropriate financial plan that works for your company. Here are a few tips for how to craft the optimal marketing budget for your startup business.

Create the department

The biggest expenses that will go towards your marketing department will be the initial costs of getting the department up and running. You most likely will need to hire new employees, and buy equipment specifically for the team.

Brining in a new employee, especially an experienced marketing professional, will not be cheap. If you want a quality staff, you have to pay for it. Last year, the average Director of Marketing made just under $88,000. This does not account for benefits, onboarding, or any other additional costs.

Besides hiring new employees, you’ll also need to purchase the correct tools for the marketing team to do their job. Different equipment such as, laptops, editing software, cameras, subscriptions to different marketing tools, and more will not be cheap either. You don’t need to purchase everything all at once. However, having these tools will help the marketing team be more effective in the long-run.

Funding options available

As you add up the numbers, it can start to look like an intimidating amount of money to invest into just one department. Remember, there are different funding options available to help offset large business expenses. Some different ways you can help fund this new department are:

  • Use a business loan. As a startup, applying for a business loan can be disheartening. Strict requirements can disqualify you right away. Even if you are able to apply, the approval rate is only 56% when going through a traditional lender. If you are worried about getting denied, look into a business loan from an alternative lender. Alternative lenders boast higher approval rates and have less strict requirements to receive funding.
  • Apply for a grant. Grants provide a lump-sum of cash to your business that does not need to be repaid. Grants are excellent to use if you already have some cash saved up. They don’t provide as much capital as a business loan would. Receiving a grant will be difficult as many businesses will be applying for this free funding option.
  • Ask family or friends. The last option to take into consideration is borrowing money from your family or friends. It is best to try and keep your personal life and business life separate. As a startup, this can be difficult. If you do need to borrow money from someone, draw up a contract. This would be just as you would with any other lender.

Do not let the sticker shock of creating a whole new department keep you from doing so. While it will be costly, there are a variety of ways to help fund this new exciting initiative.

Let’s talk revenue

Now that your marketing department has been created, you have to think about what your annual operating budget will be. Your marketing budget will only be as large as your revenue allows it to be. In the startup phase, you are probably just starting to see better revenue numbers. It can be an exciting time, but also a dangerous one. Overspending can lead to the downfall of your business. In order to combat this issue, consistently reevaluate your budget as your business grows.

As you draft your marketing budget, question what percentage of revenue would be suitable to spend on marketing. While the number will range, The U.S. Small Business Administration (SBA) recommends that companies spend between 7-9% of their revenue on marketing.

Common questions to consider when creating your marketing budget for your startup

Do keep in mind that the SBA is merely suggesting that businesses spend 7-9% of their revenue on marketing. However, some companies will spend more and some will spend less. Your budget will range based on a variety of factors. Some common things to consider when drafting your budget are:

  • What type of business is your company? B2B businesses, on average, only spend 6.8% of their revenue on marketing. B2C companies will have a higher budget, spending between 9-16% of revenue on their marketing budgets.
  • Are there factors outside of your control? Operating under universal rules is never a good idea, as universal plans do not account for random events occurring. This year, most businesses will likely have lower marketing budgets due to the impacts of COVID-19.
  • What industry are you in? Not every industry needs a huge marketing budget. For instance, a consumer packaged goods brand will use almost a quarter of their revenue towards marketing. An energy brand will only use 4% of their revenue.

Sticking to a percentage of your revenue is a great way to ensure that you do not overspend when establishing a marketing budget for your startup.

New world, new budget

With the current state of our nation, chances are your 2021 budget is going to be much different than any other year. The lasting impacts of COVID-19 have reshaped how we do business. Your budget should account for the new way your business operates.

In the past, businesses were spending large amounts of money on office space and the logistics that come with having a physical workplace. Now that business owners have seen that remote work is the future, they are downsizing their office space, allowing them to pocket more money.

If your business is able to shed some unnecessary costs associated with having an office, do it. The money can be redistributed into more valuable areas of your business. With this new budget, the percentage of revenue spent on marketing for your startup can be raised. Just remember not to go crazy with your money allocation, overspending can lead to as many issues as underspending.

What is the verdict?

There is not going to be some universal number that you need to spend on your marketing efforts for your startup to be successful. Instead, there are recommended ranges and tips that can help make sure that you fall in line with your competitors. At the end of the day, it’s your business and only you can control how much is spent on marketing. If you, as the owner, feel that you can make it by spending a little less on marketing than your competitors, follow your instincts. If spending more on marketing guaranteed success, everyone would just spend all of their money on it.