Budget Allocation for Tech Product Launches
While there is more information available to marketers today than ever before, marketing remains more art than science. Consequently, there is no such thing as an ideal marketing budget, let alone an ideal marketing budget mix. Indeed, marketing a new product in the tech industry, or any industry, requires flexibility and honesty as the results of the initial campaign(s) become known. However, a review of expert opinions and company surveys does provide some useful rules-of-thumb which a new or existing firm may find useful in planning the initial marketing campaign for a new product or service.
MARKETING BUDGETS ARE NOT FIXED IN STONE
- As explained by one marketing firm, "Marketing is an experimental and iterative process."
- This means that at every stage, the marketing team must test their budget mix and marketing ideas, collect accurate data about the results (typically over 30-day periods), and then tweak the advertising mix during the marketing campaign.
- Once the best marketing channels are discovered, the campaign can be scaled up and new mixes determined as brand awareness evolves.
TOTAL MARKETING BUDGET
There is no single "magic number" when it comes to how much to allocate to marketing for a new product, let alone the specifics of how that marketing budget should be used. For example, in drawing up a marketing budget:
- A typical "magic number" for the marketing department's budget is 10%.
- However, even a 1% increase produced a 2.5% revenue increase and a correspondingly better ROI in at least one Duke University study.
- Tech companies spend an average of 15%.
- However, for a startup launching a new tech product, even a 20% budget "might not be enough," while an established Fortune 500 company might only spend 5% of its revenue on marketing.
- Other experts recommend that small businesses devote 12-20% of their budget to marketing and established businesses 6-12%.
- However, this goes against the advice of the US Small Business Administration, which suggests that companies earning under $5 million spend only 7-8% on marketing.
- SaaS companies (especially those funded by venture capital) tend to spend even more of their revenue, with Salesforce spending 53%, just for example.
The primary takeaway from the above is that there is little to no agreement on even how much of its budget a business should spend on its marketing, let alone how that money should be allocated.
MARKETING BUDGET BY BUSINESS STAGE
Consequently, there is no "fire and forget" solution to choosing the right advertising mix. Even so, a few experts have attempted to offer some general rules-of-thumb based on the nature of the company in question. So, for example, Greg Swan of CPC Strategy suggests the following budget breakdowns based on the business stage:
- These budget divisions can also be compared to the stages in the customer funnel, with Demand Generation / Awareness at the top of the funnel, followed by Demand Fostering / Interest, Demand Capture / Consideration, and Re-acquisition / Purchase at the bottom.
- Demand Generation tends to have the highest budget because consumers only spend 21% of their online time searching, with the remaining 79% of their time "across websites, mobile, YouTube, and Gmail."
- Consequently, a new startup or even a mature business trying to capture consumer attention on a new product must advertise across multiple channels.
Apart from these, CPC Strategy notes that there are several other models which might require their own mixes, including (quoted verbatim):
- Digitally native direct-to-consumer brands that started out online
- Wholesalers that are building their own direct-to-consumer model
KNOWING ONE'S CUSTOMERS
In many respects, the ideal marketing budget mix depends greatly on one's expected customer base. Consequently, businesses make significant investments in building their market knowledge:
- 8.6% of B2B and 6.6% of B2C marketing budgets go towards developing new marketing knowledge and capabilities.
- 4.5% of B2B and 6.3% of B2C marketing budgets go towards marketing research and intelligence.
Most experts in this area suggest using the information gleaned from the above to create a buyer persona for one's target audience, then design the marketing budget — and even future iterations of the product — around that.
DIGITAL MARKETING MIX
- Currently, 44% of marketing budgets are spent on digital marketing.
- This is expected to grow to 54% by 2024.
According to CMO Survey data, the average allocation for a company's digital market in a B2B business is as follows:
This mix is changing rapidly, however, with the following channels experiencing the most growth in 2018:
Another survey found that content marketing is an extremely important part of the mix:
- The average company spends 26% of its total marketing budget on content marketing.
- The highest-performing companies spend 40% of their budget on content marketing.
Digital marketing firm Sculpt recommends the following budget rules-of-thumb on how much to spend on social media marketing:
- Use 10-25% of the marketing budget for social media marketing.
- Assign 60% of the social media budget to brand building.
- Assign the other 40% to sales activation.
In addition, larger, more complex organizations require more budget allocation to their social media governance than small, agile startups, especially if they are in a regulated industry.
While the available data is not specific to the tech sector, influencers are an important part of an overarching strategy for the overwhelming majority of industries:
- 93% of marketers use influencer marketing.
- 84% say that they find influencers to be effective.
- 60% plan to increase their influencer budgets.
In terms of budget, the amount allocated varies:
- 53% of marketers allocate 10% of their marketing budget to influencers.
- 3% of marketers allocate 25-50% of their budgets.
- 18% allocate over 50%.
INGENUITY OVER PERCENTAGES
Ingenuity in marketing can count for a lot more than getting the right marketing budget mix. For example:
- WePay took advantage of PayPal receiving negative publicity for freezing accounts at PayPal's own developer conference.
- WePay representatives arrived and "dropped a huge block of ice with frozen money and a simple message to PayPal users: PayPal Freezes Your Accounts."
- This resulted in a 225% increase in traffic and a 300% increase in sign-ups.
A good list of marketing ideas of varying degrees of ingenuity can be found at the Shane Barker blog.