How to Best Manage Your Startup’s Marketing Budget

Startup Marketing budget

It goes almost without saying that marketing matters. It educates and informs your customers about what you do, builds your reputation (people will link good, solid marketing with a good, solid business), and widens your net to drum up new business rather than solely relying on repeat customers – just to mention a handful of benefits. Simply put, it’s a key driver of revenue and an essential growth lever for any organization, no matter how big or small. 

But marketing also costs money. Not just that, but it potentially costs an unlimited amount of money, since it’s an area you could theoretically continue spending on forever – or until you ran out of it. Whether it’s a small targeted campaign or a broad primetime campaign designed to saturate the market with your messaging, there’s no simple answer to the question “how much does marketing cost?”

This is a question that’s tricky for any business to get to grips with, and even tougher for the proverbial scrappy, lean startup looking to get the most bang for their marketing buck, while still remaining in firm control of their finances.

In this article, we’ll take a look at the vital importance of determining your startup marketing budget – whether that’s figuring out your marketing expenses or tips to maximize your startup budget. 

Let’s get started!

How to determine your marketing budget

Before you decide where you’re going to spend your marketing dollars (or pounds or euros or…) you need to know how much you’ve got to spend. Or, if you’re the head of a marketing department in a company making a budget request to your C-suite team, how much you should ask for. 

When it comes to determining your marketing budget, consider these metrics:

  • What’s your annual revenue? You can’t spend what you don’t have, so it’s essential that before you consider marketing spend, you know your estimated or gross annual revenue. (Or, for pre-revenue startups, how much money you have to spend either from savings, fund raises, or other sources.) 

Once you know this, you can work out a percentage of revenue that will be taken up by marketing. Of course, this involves some additional nuance…

  • How long have you been around? Not every company is the same. If you’re an established company that’s been around for a while, you might not have to spend such a large percentage of gross revenue on marketing to see positive results and maintain your position. On the other hand, a newer company that wants to grow awareness should likely consider spending a higher percentage of its budget on marketing – especially if you’re competing against others with deep pockets. 

There’s no fixed formula carved in stone here. Some sources suggest a minimum monthly spend of $5,000 for a startup wanting to have some form of visibility, although that does not take into account the size of the startup or the market it is operating in. 

A smarter bet would be to spend as a percentage of overall revenue – so that the bigger the company gets, the more you spend. Many companies will reportedly spend as little as 1 percent on marketing. The U.S. Small Business Administration (SBA) recommends that, for businesses with sales of under $5 million per year and net profit margins of between 10-12 percent, you should spend approximately 7-8 percent of gross revenue on marketing. Ultimately, there are no hard and fast rules, but properly investigate your sector and competition and be prepared to spend up to 20 percent of gross revenue on marketing for a new entry. And about 20 percent of your time on marketing as well.

  • What are your goals? No one (or virtually no one) sets off on a journey without knowing where they’re going. This should also be true when it comes to marketing efforts. Knowing what your goals are will let you set a budget in order to have a realistic chance of achieving those stated goals. Typical goals in this area might be increasing your number of leads, earning more sales or subscribers, increasing awareness of your brand, and more. 

Be as specific as possible (e.g. how much do you want to increase sales: by 5 percent, 20 percent, or 50 percent in the next year?) so that you can accurately measure how well these goals have been achieved. Once you know your goal, you can then invest in the best marketing strategies and tools to help.

Figuring out your expenses

It’s easy to say that you should spend, for example, 11.5 percent of your gross revenue on marketing. But what exactly does this go towards in terms of marketing efforts? Before you even consider the content of your marketing message, ensure that you’re aware of the expenses that you’ll be shelling out for.

These expenses will typically be constant, meaning that they will be recurring costs for as long as you’re continuing your marketing efforts. While that means you’ll be expected to pay over and over, it also means that you can come up with a pretty accurate forecast of what your expenditure will be in a typical month. 

The three main areas will be as follows:

  • Salaries: Wages for marketing staff and freelancers.
  • Subscriptions for marketing tools: Think demoing and webinar software, Dropbox subscriptions, social media management, SEO tools, email marketing platforms like Mailchimp, website hosting