If you have managed to establish a new business, you will remain with the task of determining how you can effectively market your services and products. Most importantly, you will have to determine the amount of money you will incur to conduct the promotional cost.
Just like product development, including marketing into your business plan is an ever-changing and continuous process that will change based on your business goals.
The marketing budget implies costs associated with promotions, public relations, advertising, and other aspects that can be labeled under the marketing niche. You should know that marketing is necessary if you wish to establish your brand awareness and attract customers to your new business.
In case you do not determine the amount of money that you can spend on marketing and employ appropriate strategies, you might not survive in the competing business world. That would mean that your business might collapse after a short period.
How much do start-ups spend on marketing?
#1. The estimated amount of money that you can spend on advertising
Most guidelines reveal that start-up businesses should spend approximately 6 to 8 percent of their revenue on advertising. On contrary, most start-up businesses spend about 1 percent. However, you might wonder how you can set your budget and you have not determined your revenue amount.
The US Small Business Administration and marketing experts appear to not agree with the recommendation of the amount of money one can spend on marketing a new business start-up.
In this case, the US SBA recommends that you spend approximately 7 to 8 percent of the gross revenue on marketing if you generate $ 5 million in sales and net profit ranging between 10 to 12 percent of that amount.
In reality, the actual amount that you can allocate to marketing as a start-up business will range between 2 to 3 percent of your revenue. The recommendations from marketing experts will range between 1 to 10 percent.
Therefore, it will be safe to budge for around 5 percent. Since several aspects determine your marketing cost, you should set a budget so that you can avoid overspending or underspending.
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Below are some of the factors that can help you to determine your marketing costs.
You should consider how quickly you wish you expand your business. In particular, you should determine the period that you wish to take so that you can grow your business and the number of customers you plan to handle within a specific period.
For instance, if you have a small restaurant start-up business that can handle approximately 100 customers per day, you will have a small marketing budget.
In this case, if you conduct an extensive advertising strategy you can generate huge demand. If you cannot manage the increased demand, customers will visit other nearby restaurants.
On contrary, if you can handle hundreds of customers, you should market your business to suit that customer scope. If you wish to expand your business within a short period, you should open more locations and use the franchising method to market your business.
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Pricing your product
When determining your marketing costs, you will have to consider the prices of your products. For instance, if you have a product with a buying price of $100 and you are selling it at $105, you will be forced to rely on volume sales so that you can business can be profitable.
If you are selling a highly demanded product or service, it will be easier for you to spend a considerable amount of money on advertising since every sale might contribute to huge products.
Nature of business
The location and nature of your start-up business might establish special circumstances that you will consider when allocating your marketing budget. In reality, some businesses need a limited budget in marketing their products and others need a huge budget.
For instance, if you operate a water-refill station, you will not be required to spend a lot of money in marketing your business since customers who need water will look for ways, they can local your refill station.
On contrary, if you are providing telecommunication services, you might be forced to spend a massive budget to market your services or product.
However, as a start-up, you might be forced to allocate an extensive budget that will be approximately a quarter of your revenue so that you can gain your initial target audience.
Although such a budget might appear risky to a start-up business, you should know that it can also be risky if you do not market effectively as you start your business.
Your business capital base
Your capital base will also determine your marketing budget because you cannot spend money that you do not have. Although you might have a unique marketing strategy, the intention of conducting extensive marketing, you will only manage within your budget.
It can be a poor decision if you decide to allocate a large percentage of your start-up capital to marketing since you need to cater to other needs such as paying rent and purchasing business equipment.
Therefore, you should have a well-balanced budget irrespective of the marketing concept that you have for your start-up.
Feedback from the field
You need to open channels that will enable you to receive feedback from your potential customers and customers. If you receive feedback from surveys that indicates that most people do not know that your business exists, you will only be left with the option of increasing your marketing budget.
On contrary, if you have started a business dealing with a product with the limited competition you might not spend the same amount as a start-up business attempting to gain customer attention from a saturated market.
Building a foundation
As a start-up company or entrepreneur, your major activity will be to sell your products or services. Selling a product might need a considerable amount of money and time. In case you do not sell your services or product, most of your accomplishments will not make sense.
Such a case explains why as you start your business you should know that in the future you will face years that will need more spending. In this case, you will be required to invest in the foundation of your daily marketing activities.
For instance, you should have a performance-based and up-to-date website to achieve a solid marketing foundation. That is because a website will be selling and showcasing your marketing services 24-hours.
Therefore, you will be compelled to exceed the approximate 5 percent marketing cost so that you can update your website regularly.
Fortunately, with the advancement of technology, you can access several inexpensive marketing channels that can enable you to build a foundation and sell your products.
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The most affordable and common marketing channels that you can consider as a start-up business include:
1# Site development
Most start-ups do not develop websites. However, they end up losing several prospective customers. On contrary, other start-ups invest a lot in establishing sites that translate into a loss or low payback. A website is one of the critical marketing tools.
However, during the initial stages, having a small information portal would be enough as it will offer the clients an overview of your business and products. Depending on your business niche, you can choose to create your site or order development services.
You can avoid site development costs by creating your site if you are knowledgeable in marketing researching and technology.
2# Social marketing
Marketing your start-up business on social media has a huge potential if you targeting a demographic of customers who spend most of their time online. In this case, you can use inexpensive ways such as Twitter, Pinterest, Instagram, Facebook, and LinkedIn to promote your business.
Most of these online social medial channels will suit one business over another. For instance, Instagram, Twitter, and Facebook will provide powerful platforms that will maintain your products and name among your target audience.
On contrary, LinkedIn can offer your business a professional appearance. Although you will spend considerable effort and time in managing social media profiles, it can be the best way you can use start-up since you will need a limited budget.
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3# Pay Per Click
PPC advertising encompasses digital marketing that you can use in your start-up business. The PCC methods include targeted ads on social media and Google AdWords.
These methods can be the best way that you can employ to see the conversions and traffic if you have a business site with SEO rankings and limited domain authority.
Both of these aspects will take a considerable amount of time to develop. However, the PPC method will suit start-ups that have investors who wish to experience results within a short period.
4# Content marketing
Blogging is one of the effective ways that can help you to build brand recognition with your prospective clients.
Although it can take time to experience the return on investment, you will be able to generate more leads since potential customers would have familiarized themselves with your brand. In the end, the cost per visit to your site might lower than PPC and will assist in SEO rankings.
The digital marketing methods can tandemly work with each other and offer you measurable results by enabling you to learn the customers interested in your product. With time you can add other marketing channels to achieve your objectives.
In case you have implemented any of the marketing channels, their associated costs will fall under the marketing expenses. Therefore, they might change the marketing budget that you have.
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How to Minimize your Marketing Costs
- Spread your marketing strategies
You should not concentrate on marketing your products in one place. Most start-ups make the mistake of investing their money in one marketing channel. In reality, when starting your business, you do not know the medium that most of your prospects will respond.
Therefore, you will have to explore and test different medium and venue to determine their return on investment to your business. You should also consider inexpensive ways that you can use to market your business instead of advertising.
For instance, cross-promotions with other businesses can drive traffic but will be less costly compared to newspapers.
- Ensure that your marketing channels align with the business objectives.
Although you can access numerous marketing channels to reach your target audience, you should choose one that will align with your start-up business objectives. However, there are no marketing channels that are established equal.
Therefore, you should first determine your business objectives. When determining the business objectives, you should categorize them into short-term, medium, and long-term.
As a start-up, the objectives will revolve around the amount of investment that you could have secured and your current financial situation.
Although using several marketing channels means that you will incur more marketing costs, you will experience more and faster confident results.
Therefore, your marketing channels and budget should match the amount of capital that you could have secured and the one that you can comfortably allocate.
You should also assess the capabilities and internal skills of your business for you to have a reasonable estimate on the marketing components that you can do in-house and the ones that you can outsource.
- The cost per customer
You should have a strong understanding of the value of your marketing efforts in terms of customer base, conversion, leads, and projected lasting customer value so that your marketing costs can be worthy. That will be easier for established businesses since they can use historical data for their calculations.
However, as a start-up, you can use targets and projects to determine your revenue. In this case, you should be ready to use estimates before you determine the actual performance.
To determine the cost per customer for your start-up, you should consider the cost of your marketing and sales within a certain period and divide it by the number of customers you could have gained over that period.
Your cost per customer should balance with the expected gross profit margin and customer lifetime value. Such expected aspects should account for servicing and support costs.
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Marketing is critical to every business. For start-up businesses, marketing is critical in setting them apart from other businesses and allowing clients to know that a viable option exists in the marketplace.
When determining the amount of money that a start-up can spend on advertising, it can be challenging for one to determine that because every business is unique. However, the cost will depend on the advertising channels, growth plan, and product price.
Bijay is an entrepreneur and start-up founder having more than 14 years of IT industry experience. He is the co-founder of TSInfo Technologies, a SharePoint development company.
A dedicated professional and very passionate about public speaking and also wrote thousands of technical blogs in various technologies. He also wrote a lots of blogs on entrepreneurship, investment, startup, business, manage money tips, etc.