Creating your startup marketing budget can either be very frustrating or highly rewarding.
In today’s startup world, metrics that are commonly tracked skew towards vanity.
With millions of dollars in the form of seed funding and 10’s of millions in subsequent rounds, it’s easy for founders and CEOs to focus on the things that draw eyeballs — particularly eyeballs with large wallets.
How about a litmus test. Are you focused (primarily) on one or more of the following:
- Growth: Users, users, users. And clients, clients, clients. Not exactly paid plans (a SaaS with a freemium model, for example) or good lifetime value (LTV).
- Revenue: Getting the top number higher to make a slide that says XX% growth quarter-over-quarter.
- Head Count: You get to say we have XXX employees and each of them get to say they were “employee X” of your startup.
Don’t see this and think these numbers are bad. By no means. Growth is critical for a startup, especially those with investor funding. And revenue is a decent measure of that growth. (Just knowing your head count is nice, but it’s not necessarily a valid metric.)
How do startups and businesses achieve growth (and higher revenue)? Most of the time — it’s via marketing.
- Growth marketing (“hacking”)
- PPC marketing
- Content marketing
- Conference marketing (B2B products, in particular)
It’s the marketing of a startup that takes you to one of the most important numbers of your business — the budget for said marketing efforts.
Create a startup marketing budget
Budgeting is all about tracking what really matters.
Other content on this topic will likely start with the actual number of “budget”. Sure, you can likely earmark the amount (general consensus is typically between 10-20% of revenue). But too many startups think too linear here.
Amount to spend > Create marketing plan > Track progress
- But what will you track?
- How do you know that the campaigns and ideas are working?
- What happens when something doesn’t work?
Key point: A marketing budget isn’t a percentage of your revenue. A nearly arbitrary number that you’ll use to buy ads, content and design.
In order to put the marketing budget for your startup on paper — start with the metrics you’ll track.
5 metrics for any startup marketing budget and plan
1. Not just ad spend, but track the ROAS
Return on ad spend (ROAS) is a formula showing how much revenue (dollars in) is generated from the ad spend (dollars out). While there’s no set “good” number here, most agree $4 in revenue for every $1 of ad spend is a good target.
Note: ROAS is possibly the most powerful metric for maintaining a profitable marketing budget. If a particular campaign or ad is turning over well, you can increase the spend (or vice versa).
2. Cost per lead
Startups with a longer buying cycle won’t necessarily be able to clearly see an ROAS.
For example: Let’s say you’re selling a Software-as-a-Service product (SaaS) for 5-figures (or more) per year. This kind of large-ticket decision likely involves more than one person in the target company.
In order to continue to see how well your marketing strategy works, you’ll need to see how much money it takes to bring in a lead. If that same SaaS company is using Facebook ads to drive traffic to a webinar — it may be unlikely that many (if anyone) will purchase at the end of the presentation.
However, the CTA at the end of the webinar is a strong push to sign up for a demo walkthrough of the product.
If the cost of 200 webinar attendees was $400, the fictitious company could call it $2/lead. Or if two of those attendees become “sales-qualified” by agreeing to a demo, it could be said that each lead cost $200.
How you label/calculate is important, as per the example. This is exactly why metrics should be first on the to-dos of setting up your budget.
3. Conversions (of various kinds)
Conversions are the “yes” decisions your visitors, leads and even customers make in your marketing (and sales) funnels. This decision isn’t necessarily payment. It can also be leads (as previously mentioned).
Conversions also take place at various points within your marketing funnel.
For instance, if someone signs up for a piece of demand gen content (aka “lead magnets”), that’s a conversion.
Then, when those sign ups start a free trial, another conversion. You get the idea. These are CTAs given (by you) and decisions made. Tracking the conversion rate of each decision point prevents breakdowns in your marketing plan — aiding your budget.
For example: You have a ton of signups, but no one is signing up for a trial. That’s a problem with your marketing. You’ll likely have to use budget to fix it.
Things like:
- Better content (video demos, sales enablement content)
- More inside reps quickly replying to incoming leads
- Increased number/quality of emails sent to signups
4. Lifetime Value (LTV)
SaaS, service-based B2Bs and other recurring-revenue businesses should track the lifetime value (LTV) of their clients.
Why? It will help you adjust your marketing budget over time.
Example: The expensive SaaS company charges $500/mo with users sticking around 4 months, that’s a $2000 LTV. Then, used in conjunction with the cost per lead metric, the company understands it costs $400 to acquire a new user.
Logic would dictate that the company push the marketing budget up. All the way up until they max out all audience/ad channels/campaigns at the $400 per user level.
5. Cost of goods sold (COGS)
If you’re a physical product business (either with an in-house inventory, FBA, etc.), the cost of goods sold (COGS) is another important metric for marketing.
A bit like the LTV, if your costs for the product are factored into your marketing budget, you’ll better understand the real effectiveness of your campaigns. Of course, there are always other things that come into play.
Anything that affects margins, really.
Your business may have a high rate of return customers, or low expenses/overhead. While it’s a bit more difficult to track the exact profitability of your marketing, COGS give a good idea of your budget’s health.
Why metrics matter more than the dollar amount
The dollar amount matters. But the metrics used to track results from marketing spend show you how the money is working for you. Each of the listed metrics give you a dashboard to accurately measure, track and grow the business. No matter the size of your budget, if you keep an eye on this data;
- You won’t waste money on channels that aren’t working
- Easily increase budgets for strategies and channels that do work
- Control the growth and generate accurate forecasts to better run the business
Begin with the metrics you’ll track. Create the plan. Set the dollar amount to fulfill the plan. And then your budget is ready to roll.
