Well hello there, and welcome back to another episode of the Productpreneur Success podcast. And today on the show, we’re going to be talking about – how to decide on your marketing budget. How much money should you spend on marketing? 

This is a question I see and hear a lot, and it’s very smart to be thinking about it. But the answer is very much “it depends”… 

A marketing budget is a balancing act: spend too much and you’ll break the bank, but spend too little and no one will know that your business or your products even exist.

Most of the literature out there on the topic of setting marketing budgets for your business focuses on two different methods of calculation:

  1. Percentage of Income, and
  2. Fixed budget.

There is also some information publicly available about how to divide up your marketing budget and decide what to spend it on. 

Generally you’ll have a mix of activities that are designed to build your brand awareness and attract and engage with your target audience, and activities that are designed to drive traffic and sales.

Now I’ll dive into these topics in some detail shortly, but none of this really accounts for how you should budget for marketing depending on the stage of business you’re in. 

And frankly, treating these decisions the same for a start-up and a mature business is just silly. 

So I’m also going to talk about the differences in what you should focus on and budget for during the different growth stages of your business.

1. Getting started and launching your business

I remember when I launched my first business, I was absolutely shitting myself! I was almost too scared to tell any of my family and friends I’d started a business, or invite them to look at my website.

Why? Because of an almost-overwhelming fear of failure. I had set myself a really big goal, and standing on the starting blocks, that goal looked totally unachievable!

Is that familiar to you?

It’s actually really common!

BUT, if you want to progress, you gotta beat that fear of failure.

And the way we do this, is to detach ourselves from the outcome and focus on the process.

You want to focus on mastering the process of doing business, and of sales and marketing, without attaching your ego or self-worth to the outcome.

Doing this liberates you and enables you to just learn what you’re doing.

And the first thing any start-up business owner needs to understand and accept is that they will not be profitable from day one. 

From a marketing spend perspective, here’s what you need to prioritise and to be able to fund in order to set yourself up for long-term success.

I am recommending that you spend some funds on marketing activities at this pre-revenue stage, and they’re designed to (A) get you proof-of-concept as fast as possible, so that you know you’re onto a viable business idea, and (B) get you moving as lean as possible. IE you do not need to go and spend $30K on your first website or branding package!

Getting proof of concept and validation of market demand. Too many small businesses get started without doing this step and it can cost you a lot in the long-term.

I know that there is the temptation to think that, because you need something yourself that there will be a large portion of the market who would also want to buy your stuff.

It’s also tempting to just ask your mates or your family if they think your idea is good, but just remember that these people love you and don’t want to hurt your feelings so they’re often likely to give you a favourable answer. Also remember that your mates and your family are often not business owners themselves, so really, what would they actually know?

So how do we validate our product and confirm that there is enough market demand to warrant starting a business? Basically this means you need to find a way to get your product in front of your target audience and ask them to buy it.

Contrary to the belief of many people – just getting an Instagram page up or a website up is not going to do this for you, because the chances are high that no-one will know you exist at this stage.

In my first business, and several other brands whose founders I know, the quickest way to get this validation was by attending a consumer expo or trade show.

Monica from Whole Kids, who featured on our podcast recently, did this – you can listen to her interview on episode 77.

I know Monique and Dannielle from B-Box also did it this way – I know that because their stand at their very first expo was literally across the aisle from my stand!

The other way that you can do it of course, is to set up a simple website or landing page and start driving traffic to it and see if people buy.

This is a simplistic explanation and I haven’t described either strategy in detail – we can save that for another episode – but you’ll notice that both methods will require you to spend some money. Probably around $3000 would be a realistic budget here to get that validation of market demand.

The other marketing things you will need to budget for to get started is a simple website – just go with Shopify and a decent theme. You’ll spend a few hundred bucks. Once you have a positive response to your market validation exercise, you can go ahead and spend more money in designing and building a proper website.

You should sign up for an email marketing platform from the get-go – Klaviyo of course is our recommendation for eCommerce brands – but you can use the free version to start with.

And branding. When do you spend money on this? To do a really good job with your branding is not possible with someone cheap and cheerful on Fiverr  or Upwork. Those options won’t have the skills or experience in visual communication that you need to create something unique that positions your brand how you want to in the eyes of your customers, but they’re also highly unlikely to do the necessary research into trademarks and competition, and you’ll end up with a rip-off of someone else’s logo, which leads to all kinds of trouble and may cost you dearly down the track! (If you don’t believe me – go and google Zoe Foster-Blake who shared a story not long ago about creating a bunch of merchandise with the name Breakup Boss, only to be taken to court by mens clothing brand BOSS. She lost a heap of money having to destroy all those products and reproduce them under a different name!)

So for the purposes of early validation, I would just use a simple typeform version of your intended brand name, and once you know you’re on a winner you can spend some money on a decent brand designer.

2. When you have a few customers (but still a long way to go)

Sometimes, getting those first few sales and customers can be easy and happen quite quickly after launching. For others, it’s more of a slow burn.

Either way, getting those first few customers to buy from you feels so good. And once you have those first sales under your belt, you have your proof of concept, right? Evidence that people are willing to pay money for your product, like we were just talking about.

But a handful of customers does not a business make, does it? So what do you do now, when making some proper, consistent revenue still seems so far off?

From a mindset perspective, here’s what you want to do: you want to stop thinking big and start thinking small.

That sounds a bit counter-intuitive, right? Normally the advice is to set yourself a big goal, a big vision, and then repeat that to yourself daily like some kind of mantra. Manifest that goal into existence.

But for lots of start-ups, constantly focusing on big goals can be incredibly overwhelming. And feeling overwhelmed can cause you to feel stuck in your business, rather than moving forwards!

It can feel a bit like a non-runner setting the goal to run the Badwater ultramarathon, which is a 135 mile race. If you’ve never run before, and you keep focusing on that sort of a goal, it’ll just feel so far off and impossible – and that just makes you feel like a loser, which is not exactly motivating at all! 

Instead, break down your goals and tasks into small manageable steps that are easy to achieve.

Ask yourself, ‘what can I do to make an extra $500 each month?’ or ‘what can I do to make one more sale a week or a day?’

This stage of your business tends to require learning and testing some different strategies in pursuit of discovering what works to convert into sales.

And when you approach this with that learning and testing mindset and you improve a little bit each day, eventually big, lasting improvements happen, and if you think about just trying to be 1% better than yesterday, the compound interest of that over a year represents huge growth. 

But what sort of marketing should you be doing at this stage and how much should you budget for it? 

At this stage, I would actually recommend taking a course. Generally this will be the fastest way to learn what strategies typically work the best for your sort of business model, and learn how to execute them properly. 

If learning how to drive traffic and sales in an ecommerce business is your goal, then I can highly recommend our Productpreneur Website Formula at this stage. 

Most high quality training courses are around the $2-3000 mark, and often have payment plans as well. 

The next thing I would recommend is to find people to give some of your product to in return for detailed reviews and recommendations. Try and get a mix of video reviews as well as long-form written content and images as well. I’m not suggesting paying for big-name influencers here, rather find people who are either regular customers of yours or look for micro-influencers or brand reps who have small but highly engaged audiences that overlap with your own target audience. You also want to make sure they have an existing interest in your sort of product so they can speak authentically about it, and also have a photographic and writing style that suits the look and feel you want to go for with your brand.

This sort of exercise may cost you a few hundred dollars in free product, and it won’t lead directly to sales in your online store, but it’ll pay dividends long-term when it comes to building up brand awareness and growing the volume of people in your audience. And these are essential – if you want anyone to buy from you, first they need to know you exist! Don’t be like Smaug the dragon sitting on his pile of treasure – it’ll just keep your store the world’s best secret, doing you no favours at all.

Then, you will need to budget for paid traffic. Initially, aim for $50 a day as you learn the ropes and try to figure out what works and converts into traffic and sales. 

Of course there are other marketing strategies you should employ at this early stage in your business, but a lot of them will be free. Like learning how to optimise your website for SEO and email marketing, both of which we teach in our Productpreneur Website Formula course. 

In terms of total marketing budget – at this early stage in your business, you could be spending up to 40% of your revenue on marketing. No, that’s not sustainable forever, and yes you can spend less and take longer to reach the next growth stage, though if you don’t spend enough to get the data you need – ie learn what works to convert customers in your business – it’ll end up costing you more long-term. 

Realistically, your total marketing spend depends a lot on how fast you want to grow. The sooner you can get through this stage with the knowledge of what works to convert sales in your business, the faster you can start making profits. 

Unfortunately, I do see a lot of ecommerce start-ups stuck at this stage because they’re unwilling or unable to spend enough money on the kind of activities that will give them the data they need to get to the next growth stage. And that often comes down to mindset and confidence.

3. Entering into the growth phase and scaling your business

So you’ve passed the launch and initial learning and testing phases and your sales are now growing. You’re not THERE yet, you still have some way to go to achieve your goals, but sales are growing.

Sales may not be consistent at this point, but they’re growing. You’re definitely busier and you now know what marketing activities, messages and promotions shift the needle to influence sales.

At this stage, you can often feel pretty frantic. One minute you’re answering customer emails.

Next minute you’re packing orders. Then you’re working on a newsletter or Facebook ads.

At this point, things can feel pretty reactive, with little time for forward planning.

And whilst you’re really busy and sales are growing very nicely, you may not be in a position to pay yourself consistently just yet.

Before you burn out or start dropping the ball on something important, you need to get some help.

This may be hiring your first team member, perhaps a customer service rep or social media manager, or outsourcing something like order picking and packing.

My biggest tip here is to spend a couple of weeks keeping track of what you’re spending your time on each day. Once you’ve done that you want to classify those tasks into ‘low dollar an hour’, ‘medium dollar an hour’ and ‘high dollar an hour’ tasks, calculated based NOT on how much it costs you to pay someone to do them but on the growth impact those tasks have on your business.

For instance, small business owners who insist on continuing to pick and pack all their own orders end up bottlenecking their growth, because they have no time or energy to spend on activities that will drive growth forwards, like planning a product launch or promotion.

And if you want to scale up you MUST be able to fulfil those increasing orders, from ensuring you always have enough inventory to sell, to picking and packing orders in a timely manner. 

It is tempting, I know, to want to gun it hard from zero to a million dollars a year overnight, but I’m yet to see a business that can do that without falling over on fulfilment, customer service and so on.

Anyway, once you move into the growth phase, and you have a team in place to facilitate your next leap forward, it’s time to scale.

There’s many different ways you can scale a business. You only have to take a peek at Google to realise there’s lots of advice about different strategies you can employ.

The temptation is strong to want to do EVERYTHING! But let me guard against this, as it’s a recipe for disaster! (Or at least, a recipe for being a whole lot less effective and profitable!)

Instead, pick one or two scalable marketing strategies at a time and just focus on implementing them really, really well.

Limit your focus to a couple of things that work well, and then optimising those till they produce exceptional (scalable) results. Don’t spread yourself too thin by attempting to execute lots and lots of different strategies. 

Scalable marketing strategies are the optimum words here. Scalable means – you have the control over being able to turn up the dial. Like paid traffic, growing your email list and sending more emails, that sort of thing. 

If you’re not sure which marketing strategies to choose, have a think about it like this:

Work out what the level of effort (LOE) will be to execute the strategy. IE, will it take you two weeks, or most of the year to get it done?

Next, work out what is the return on that effort (ROE). Might you sell just a small amount more in a short period of time, or could you make a really big, long-term impact?

You want to focus on strategies that will give you a low LOE and high ROE.

At this stage of your business growth journey you’re also likely to need to invest in a well-designed website, so that you can improve your website conversion rate. Many of you listeners would know by now, that improving your website conversion rate is something that can dramatically improve your overall revenue, because you’re converting more visitors into paying customers without increasing the volume of traffic to your site.

At this stage of your growth – scaling up – you are still not going to be as profitable as a mature business, so you will need to budget for around 15% of your revenue on marketing. Again, depending on your appetite for how fast you want to grow and appetite for risk, you might decide to spend more and get there faster.

Generally, the businesses that push ahead faster have two things in mind:

  1. They want to build a significant business asset, that they can capitalise on in a big way by selling it later, and
  2. They know how much they can spend to acquire a customer, based on the lifetime value of a customer.

When you know that last figure there, you can be more confident in spending money to convert new customers, knowing that over the long-term they will go on to spend more and more money with your business and become much more profitable for you than they are on the first order. 

5. Prioritise and optimise for profit

Once your business begins to mature a bit, you’ll be in a better position to sit back and enjoy the fruits of your labour. 

Usually, as a business grows and matures, it goes through repeated cycles of scaling and optimising, scaling and optimising.

As you scale up, you’ll be investing more time and resources into growth activities to acquire new customers. During those scaling-up phases, you might spend money adding in new sources of paid traffic, or you might develop new products that would extend the lifetime of your customers, or you might add new members to your team, or on adding new marketing strategies such as email list-building or email automation strategies. 

But during the optimisation phase, this is where you look at what you have in place and try and improve each of the performance metrics. 

For instance, you might have an average website conversion rate of 2% and want to get it to 3%, so you would spend time testing different tweaks and improvements to your website to get it to that point, or you might work with a conversion rate optimisation expert to help with this. 

Same with your email marketing. Maybe you have an automated new subscriber flow in place that converts at 5% and you can see there are opportunities to improve it, maybe changing up the offer or tweaking the subject lines or adding in more social proof or improving the design to be more mobile friendly. 

What could you do to help more customers become repeat customers? Could you extend the lifetime value of your customers from 1 purchase per year to 3? 

With your paid ads, how can you improve the profitability of your results – especially at scale? It’s easy to get a high return on ad spend when you’re only spending a small amount, but try spending $1000 a day or even more – it’s a lot harder. Usually you’ll need the help of an expert at this point.

Each time you can optimise your marketing to get better results for the same or lower cost, your business becomes more profitable. 

The other thing that happens as your business matures, is that you start to enjoy the snowball-effect. If you’ve been working on SEO over time, you’ll start to see the volume of free search traffic increase dramatically. If you’ve been working on gathering customer reviews as part of your automated email marketing, you’ll start to see that word-of-mouth and social proof take on a life of its own with customers recommending you to their friends.

And because you’ve spent time – years – chipping away at building up those marketing systems, the organic traffic and sales and the sales from your email list and from returning customers start to overtake the need for spending as much money on things like paid advertising to new, cold audiences.

So when you get to this Optimisation stage of your businesses growth journey, you can expect to spend between 8-10% of your income on marketing.

Alright – so there we have it. My tips on how to set your marketing budget and suggestions of where you should focus your spending depending on which stage of business you’re at. I hope you’ve found that helpful and maybe feel like you have a bit more confidence in what you’re doing. 

No matter which stage you’re at, if you do feel like you need some help getting to the next stage, please sing out. We have solutions to suit each stage and my team and I work with ambitious eCommerce brand owners all day, every day, helping them to grow and achieve their goals.

If you’re looking for someone with experience in this niche to help you navigate the ups and downs, then let’s chat!

Head to ProductpreneurMarketing.com to book a free strategy session with us.