How to Kill a Business: What are the Marketing and Advertising Costs for Startup
Traditionally, marketing textbooks recommend start-ups to direct 15-20% of annual income (planned) in the first five years to promote the business and then gradually lower the bar to 5%. But, as world practice shows, for modern realities this is very bad advice. Further, we will show with real examples why the 15/5 rule no longer works and how much marketing and advertising for business startup websites actually costs now.
Just note that now startups should spend on marketing about 35% of annual income at the start and from 11 to 25% thereafter (some companies spend up to 50%). Considering that the average seed investment over the past ten years has grown from 250 to 750 thousand dollars, it means that now they spend $ 262 thousand on marketing, most of which are the costs associated with entering the market or launching a new product or service.
The marketing budget usually includes the costs of researching the market and the target audience, ensuring the competitiveness of the product, informing the client about a product or service (advertising, SEO, SMM, promotions, participation in exhibitions, etc.), creating a brand image, organizing distribution of goods and sales network. All such events should be included in the marketing budget.
There are two types of budgets: the launch of the product and annual. The first document shows the variable costs associated with the launch of a new product or service on the market, the second shows the constant marketing costs for the year. It was previously believed that both the first and second budgets will gradually decrease due to the automation of digital marketing and the expansion of the Internet audience.
But, as noted in the Elad Gil essay «End of Cycle?», marketing new projects is now more expensive than in the early 2010s, despite the spread and cost of various technological solutions that simplify the work of marketers, marketers, copywriters, designers and other specialists.
Now, startups have to spend up to 35% of annual revenues on marketing and advertising (earlier, less than 20%), which is due to the following six factors:
# 1. Platform Consolidation. The duopoly of Google / Apple’s mobile ecosystems is becoming more concentrated, closed, and more saturated, making these mobile ecosystems harder to penetrate. To overcome this difficulty, companies increase advertising budgets and improve ways of promotion, so only those who are willing to spend more and more survive.
# 5. Smarter and faster competitors. Previously, startups could count on their competitors to be big, stupid, and slow. This will not happen again, as we have all become smarter and faster, especially your competitors. Now, large players create special units that monitor the market, looking for potential competitors to buy, copy or "kill".
# 6. The market gets gradually saturated. Ten years ago, startups mainly competed with the boredom of people, now they are forced to compete with Google, Amazon, Facebook, Instagram, YouTube, Netflix, PayPal, Uber and other familiar applications, services and entertainment. There is less and less free space, and therefore companies stop playing games with a non-zero sum, where everyone wins, and start playing games with a zero sum, where the winner receives all.
As noted above, most books and manuals recommend that established companies spend about 5% of revenue on marketing. However, if we study the data of The CMO Survey, we will see that successful companies usually spend more on marketing: from 6 to 9%. Moreover, in some industries this percentage is much higher.
Branding. Designing branded elements and products (from the brand and business cards to letterheads and brochures) is needed to create a holistic image of your company with customers and partners. Depending on the size, scope and goals of the business, this can take from 100 to 10 thousand dollars (usually startups cost is from 4 to 5 thousand dollars). Remember that branding creates the first impression of your company, on which its success depends on a lot, therefore it is better not to save on branding.
Web site. Frankly, if you just need a website, then you can create it yourself in a couple of hours by spending $ 100 on a domain name and hosting. But if you want your web resource to attract attention and sell products or services, as well as consistent branding, hire a web developer.
Specialists will help with positioning, SEO, content and adaptation to mobile platforms, develop a structure and design, and also help with site customization (security, user personal data, payment gateways, integration with social networks, etc.). Depending on the complexity, an all-inclusive website can cost from 3 to 10 thousand dollars.
Social networks. It’s not necessary to be present at all popular sites (Facebook, Twitter, Tumblr, Pinterest, LinkedIn, Instagram, YouTube and others), as well as to create unique content for each of them, “tailored for this platform”. It’s enough to be active in the networks that your target audience uses.
Usually it is Instagram, Facebook, YouTube and LinkedIn in America and Europe, VKontakte in the CIS, as well as WeChat, Weibo and QQ in China. The cost of marketing on social networks is from 100 to 5 thousand dollars a month for content (posts, articles, graphics, memes, tables, videos) and from 5 dollars a day for advertising. Small startups usually spend up to 2 thousand dollars a month on SMM, large - from 10 to 100 thousand a month.
Content marketing. You need stable, high-quality content to attract attention, traffic and dollars to your business. You can create content using:
Profile Events. Visiting various specialized events is perhaps the easiest way to promote, because in this case you can directly communicate with potential investors and customers. One such event can take up to 5 thousand dollars (air tickets, accommodation, meals, preparation of a presentation, etc.). There can be several such events a year, for example, in the field of video games, six major events: E3, Gamescom, IgroMir, Tokyo Game Show, Brasil Game Show and Paris Games Week.
Traditional channels. They do not work well if you need to attract people to some kind of resource on the Internet, but are still necessary for promoting startups in industries such as retail, insurance, medicine, sports, manufacturing and many other “real” sectors of the world economy.
The traditional marketing channels include television and radio, outdoor advertising, print media and magazines, as well as various events. The cost of marketing for these channels depends on the country, industry, complexity, time and many other factors. So, advertising in the regional media can cost $ 5 per column, while the price of advertising during the broadcast of the Super Bowl can go up to $ 5 million in 30 seconds of broadcast.