The first few years of any company are the most critical by far. Within this period, your business can either find rousing success or complete and total failure. The decisions you make for your new startup determine this.
While that might sound a bit stressful, every entrepreneur knows this before starting their new venture. However, that doesn’t make the decisions they make any easier. That’s why we’re here to help by going over some tips that’ll help you determine your startup’s ad-spending budget. That way, you can get started on the right foot.
Establish an Overall Marketing Budget
The first part of determining your ad-spending budget is to figure out how much money will go into your marketing budget as a whole. Obviously, the number will vary depending on your current allocation of funds, but many people suggest making your total marketing budget around 10 percent of your total revenue. If you’re a brand-new company, you’ll need to base this on your projected revenue, but you can adjust it if your first year isn’t as profitable as you expected.
Either way, 10 percent is actually more of a baseline for startups. As a new company, you need to make yourself known. No matter how great your product is, no one will buy it if they don’t know about it. Putting money into your marketing plan will help ensure that knowledge of your company spreads to your target audience and does so at a fast pace. If you’d rather play it safe initially, it’s okay to go under 10 percent. Just make sure that your marketing budget is never at zero.
Figure Out Where the Money Will Go
Once you have your overall marketing budget figured out, it’s time to determine where that money will go. Most of it will go to ad spend since many online marketing options are free, but you must decide on the type of online advertisements you should use.
There’s a lot of debate about which online advertising model is the best, but the answer depends on what you’re looking for. Typically, a startup company will want to focus on increasing its return on investment. Spending money on people not interested in your product really hurts your budget early on. That’s why pay-per-click and pay-per-acquisition are the better options when starting your campaign.
Consider Future Expenses
An important thing to remember when determining your initial ad-spend budget is that future expenses might impact how much money you put into your advertising. As a company grows, so does the number of potential expenses it needs to pay for. While profit margins should also increase during this time, that’s not always the case. Therefore, you need to prepare for the inevitability of cutting your spending elsewhere to make up for it.
Marketing budgets are usually the first places entrepreneurs turn to for these funds. So when you initially create your budget, you’ll need to keep this in mind. Future employee salaries and program memberships all cost a lot, but if you plan ahead, you can make room for them before you even start paying for them.
Creating a high-percentage ad-spending budget early on will help bring in new customers at a fast enough rate that when you cut it down later, it won’t bring your customer acquisition rate down to zero. Giving yourself plenty of wiggle room will make the reallocation of funds much easier as you expand.
Be Prepared To Adjust the Numbers
The most important tip we can give you for determining your startup’s ad-spending budget is to be ready to adjust the numbers as you go. Ad spend is never a set-and-forget process. You’ll need to keep up with the analytics of your advertisements to see what works and what doesn’t. If a part of your campaign isn’t pulling in desirable results, you need to change it.
As long as you keep a close eye on your ad-spending campaigns, you should never have an issue with running out of money. Effective advertisements will always have a positive ROI. If they don’t, you’ll need to change the amount of money you use and where it goes to fix that.