Questions

What is the ideal percentage of revenue you should apply to a marketing budget for a new business?

Need suggestions for my start-up please :)

5answers

I think differently about this, because of two reasons:

1) I've always (and only) been involved in bootstrapped startups; and

2) I've been lucky that those startups grew organically and fast (enough) which minimized our need on marketing spend.

Instead of deciding on a specific budget for this, I would instead look at your current priorities (in terms of budgeting and re-investment into your team):

1. Build a great team.
2. Build a great product.
3. Craft incredible customer experiences.
4. Spend money on marketing.

If you've already hit all 3 top priorities and you can't reinvest any further into those, then you should start spending money on marketing.

If you don't have revenues today and you are hoping to generate revenues through marketing spend, you're on slippery slope (says the bootstrapper). Whilst not wrong, this is tricky and you'd need to take a realistic look at your customer acquisition cost (CAC) and how much you can invest into acquiring new customers.


Answered 8 years ago

It's difficult to answer this question for a couple of reasons:
1. When you're a startup -- it's quite possible your revenue will be little or nothing at first. 100% of nothing is still...well...you get the idea.
2. Every business is different -- and requires a different approach at marketing.

I'd ask yourself these questions:
1. Where do you see your startup going in the next couple of years? Is your goal to bootstrap? Is it to raise funding from VC's?
2. What marketing activities can help you get to the important threshold you're setting for your company (whether that's achieving profitability -- raising a Series A VC round -- etc)?
3. How much do those marketing activities cost?

It could be perfectly reasonable to spend $50 - $100K in marketing (or more) when you expect zero in revenue IF you're achieving other milestones that will help you achieve a Series A investment (and that's your goal).

However, if you're bootstrapping a business and your goal is reaching profitability as soon as possible, it could STILL be reasonable to spend $100K in marketing, IF you're confident that every dollar invested returns 2.

Short answer: There's no magic percentage to your question. I'd spend more time being thoughtful about the type of marketing activities you think would be helpful, and what end result those activities lead to than planning for a percentage of sales.

I hope this is helpful.


Answered 8 years ago

I think all of these answers offer a lot of value, but I have another perspective - what if you thought about spend in terms of time, not money? I wrote a blog post on the distilled.net blog earlier this year talking about the types of equity you can spend - time, money, talent.

Instead of thinking about how much money you can or should spend, think about what you can do that costs little money, but might take more talent or time.

In the online marketing world, this is mostly around content. You can do any of the following for free (or cheap) monetarily:
- videos, both product and educational (like Moz's Whiteboard Fridays);
- guest blog content, starting on websites of people you know then using that to get into other websites;
- sponsor local meetups in your area to gain hometown name recognition and users;
- use services like Clarity to showcase your expert knowledge in your area.

These are a few areas that you can invest in. If you want some more ideas, feel free to contact me!


Answered 8 years ago

Start with market research first for your type of products and services. Check with similar products, replacement ones, etc. Market prices are the most important. You should know your cost prices of course.
Make P&L calculation, checking with different quantities and leaving certain money for marketing. At the end you will have several options. This puzzle will help you to decide which one is the feasible, and go for it. Do not take unnecessary risk, but look for revenue always.
all the best
Val


Answered 3 years ago

A budget is a detailed financial plan that quantifies future expectations and actions relative to acquiring and using resources. Budgets do not guarantee success, but they certainly help to avoid failure. Budgets can take many forms and serve many functions. Budgets can provide the basis for detailed sales targets, staffing plans, inventory production, cash investment/borrowing, capital expenditures (for plant assets, etc.), and on and on. Budgets provide benchmarks against which to compare actual results and develop corrective measures. Budgets give managers “preapproval” for execution of spending plans. Budgets allow managers to provide forward looking guidance to investors and creditors. Budgets are necessary to convince banks and other lenders to extend credit.
In small organizations, formal budgets are actually a rarity. The individual owner/manager likely manages only by reference to a general mental budget. The person has a good sense of expected sales, costs, financing, and asset needs. Each transaction is under direct oversight of this person and hopefully they have the mental horsepower to keep things on a logical course. When things do not go well, the owner/manager can usually take up the slack by not taking a paycheck or engaging in some other form of financial exigency. Of course, many small businesses ultimately fail anyway. Explanations for failure are many and varied but are often pinned on “undercapitalization” or “insufficient resources to sustain operations.”
Medium and larger organizations invariably rely on budgets. This is equally true in businesses, government, and not-for-profit organizations. The budget provides a formal quantitative expression of expectations. It is an essential facet of the planning and control process. Without a budget, an organization will be highly inefficient and ineffective.
The budget construction process will normally follow the organizational chart. Each component of the entity will be involved in preparing budget information relative to its unit. This information is successively compiled together as it is passed up through the organization until an overall budget plan is achieved. But, beyond the data compilation, there is a critical difference in how budgets are developed among different organizations. Some entities follow a top-down, or mandated approach. Others utilize a bottom-up, or participative philosophy.
Mandated Budgets: Some entities will follow a top-down mandated approach to budgeting. These budgets will begin with upper level management establishing parameters under which the budget is to be prepared. These parameters can be general or specific. They can cover sales goals, expenditure levels, guidelines for compensation, and more. Lower-level personnel have truly little input in setting the overall goals of the organization. The upper-level executives call the shots, and lower-level units are essentially reduced to doing the basic budget calculations consistent with directives. Mid-level executives may colour the budget process by refining the leadership directives as the budget information is passed down through the organization. One disadvantage of the top-down approach is that lower-level managers may view the budget as a dictatorial standard. Resentment can be fostered in such an environment. Further, such budgets can sometimes provide ethical challenges, as lower-level managers may find themselves put in a position of ever-reaching to attain unrealistic targets for their units. On the positive side, top-down budgets can set a tone for the organization. They signal expected sales and production activity that the organization is supposed to reach. Some of the most efficient and successful organizations have a hallmark strategy of being “lean and mean.” The budget is a most effective communication device in getting employees to hear the message and perform accordingly.

Participative Budgets: The bottom-up participative approach is driven by involving lower-level employees in the budget development process. Top management may initiate the budget process with general budget guidelines, but it is the lower-level units that drive the development of budgets for their units. These individual budgets are then grouped and regrouped to form a divisional budget with mid-level executives adding their input along the way. Eventually top management and the budget committee will receive the plan. As you might suspect, the budget committee must then review the budget components for consistency and coordination. This may require several iterations of passing the budget back down the ladder for revision by lower units. Ultimately, a final budget is reached. The participative budget approach is viewed as self-imposed. As a result, it is argued that it improves employee morale and job satisfaction. It fosters the “team-based” management philosophy that has proven to be amazingly effective for modern organizations. Furthermore, the budget is prepared by those who have the best knowledge of their own specific areas of operation. This should allow for a more accurate budget; in any event, it certainly removes one of the primary excuses that is used to explain why a particular budget was not met. On the negative side of the equation, a bottom-up approach is generally more time consuming and expensive to develop and administer. This occurs because of the iterative process needed for its development and coordination. Another potential shortcoming has to do with the fact that some managers may try to “pad” their budget, giving them more room for mistakes and inefficiency. More will be said about this problem shortly, but it is particularly problematic with a highly participative approach.
Let us now look at the marketing math:
1. New companies: For companies that have been in business for one to five years, it is suggested using 12 to 20 percent of your gross revenue or projected revenue on marketing. (Companies less than a year old, tend to need to ramp up before spending marketing dollars.)
2. Established companies: For those companies that have been in business more than five years and have some market share/brand equity, it is suggested allocating between 6 and 12 percent of your gross revenue or projected revenue.
Fees can range depending on the age and size of the company and national, local, or global marketing goals. But here are some basics:
1. Branding:
Inexpensive: 99designs $400 and does not include additional collateral (business cards, letter heads, email templates, etc.).
Good: Small agency may charge between $4,000 to $5,000 and should include all necessary collateral.
Great: More than $10,000 and this is if you are going to a large agency who is creating your entire brand book, story and collateral, among other assets.
2. Website
Inexpensive: Wix or WordPress can be a do-it-yourself website and can be free.
Good: For a Wordpress site designed to look like your brand, it will usually cost you around $3,500 and add an additional $2,000 or more if you need a plugin shopping cart.
Great: At least $15,000. The price will depend on functionality, automation and design, among other components.
3. Social media
Inexpensive: Hire an intern or a college student.
Good: Between $1,500 and $2,500 for a small agency.
Great: More than $4,000. The price is based on number of platforms, listening software, amount of real-time interaction and PR integration.
4. Advertising
Inexpensive: Tell your friends and word of mouth
Good: Some social media marketing (between $300 and $500 a month) along with targeted ads on relevant websites, which is around $500 a month.
Great: Full social, outdoor, print, digital, pay-per-click will set you back at least $3,000.
5. Content
Inexpensive: Hire an intern
Good: A freelancer platform like Odesk.com, where you can name your own price
Great: Agency content usually runs $250 and $1,000 per piece depending on word count and graphics
6. Events
Inexpensive: Show up and network at other people’s events
Good: Cross-market with another brand with the same target audience
Great: Full events strategy. For production teams, small event starts at around $5,000 and can reach into the millions.

Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath


Answered a year ago

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