Setting Your Startup Marketing Budget
An important part of the marketing plan is of course the marketing budget. You need to know how much you can spend on advertising for your business within a given amount of time.
"How much should I spend on marketing?" is a very common question asked by small business owners.
This is obviously a very difficult question to answer because for every type, size, stage of business you will have a different amount.
Ultimately, the ROI on good marketing efforts should be positive so it the marketing budget doesn't need to be set at a specific amount or percentage.
However for this article to be of any use, let's look at an example.
Startup Marketing Budget
A new company will obviously be spending a large percentage of its cash reserves on marketing. At the minimum however, as part of your overall marketing plan, you need to establish a set amount of money, a bank if you will, of how much you can draw from and spend in total.
To make things easy, let's say the new business has a marketing budget of $1000. The next step would be to determine how long that this amount should last. If the business is in a high turnover sector, and the expected incoming cash flow is fast (for example cash payments from customers purchasing your goods), then the marketing budget can be set for a short amount of time. This is because the revenue from the business will be able to be used to increase the original $1000 amount.
If the cash flow from the business is slower then the initial budget will need to last a longer period of time. This can happen when you are a B2B business and don't expect to receive payments for 30 days after billing for example.
Let's assume that this initial budget needs to last one month. The revenues after this time period will then be used to continue the advertising.
Now that we have an amount set, and a time period, we will then start to look at ways to advertise the new business. There are many to choose from, but we will pick out a few. Part of the marketing plan will have one time costs, such as a new sign for instance, and other costs may be recurring like a local newspaper ad. In this example, our startup business will advertise in the local newspaper, send out some direct mailings, and buy a yellow page ad.
Now we need to calculate the costs starting the most important costs first. In this case the business believes that the yellow page ad is the most important aspect. Let's just say that this ad costs $400. That leaves us at $600.
The next step would be see how much the direct mailing would cost, and to see how much an ad in the newspaper costs. A one time direct mailing of postcards will cost us another $400, leaving us with $200 left.
Since our initial marketing budget time frame is one month long, we want to be able to put an ad in each weekly paper. That means that we can spend $50 per week. This amount will determine the size/color of the ad that we can then have.
So, in general, that's what you have to do.
- Figure out exactly how much money you can spend on advertising.
- Give yourself a projected timeline of when you will be able to use some of your cash flow to replenish the marketing budget.
- Choose the marketing methods to be used.
- Calculate the timing so that your budget lasts the entire projected timeline.
The numbers here are not realistic they are just to illustrate the point. However, once the initial startup phase is done and you have recurring revenues, you will now need to determine what your ongoing budget will be which may be a percentage of your revenues.