How to Set Your Testing Budget For New Channels

One of the biggest growth challenges startups face is finding the most efficient marketing channels for their specific audience. These are common puzzles that plague every early-stage business working to find traction and scale:

• • Which channels should we test?
  • How long should we let them run
  • What should our test budget be?

One size does not fit all

You don’t want to blow your whole budget all on one channel but you also can’t afford to spread it too thin. You have to start somewhere, and you want data that’s statistically significant to your growth. 

So when it comes to creating the right testing budget for your startup, what is the right amount? How much money do you need in the bank to drive actually helpful learnings? 

There’s no one size fits all number for every single company. You have to look at your specific goals and audience and work from there. That’s why we hear this question so often from founders because there isn’t an ‘ultimate guide’ or copy and paste option. You have to do the work.

Here’s how we do it at Tuff: 

How to budget money to test new channels

The challenge for an early-stage team is creating a marketing budget when your company hasn’t tested many channels yet. At this stage, you might think you don’t have enough historical data to inform expectations around conversions and cost per conversions. 

The good news is, with a little digging, you actually do have a lot of data to work with. This is where we uncover how much money you need to spend and what you can expect in return.  

Step 1: Figure out your starting point 

While there is no set rule to establishing your budget, we get a baseline by setting initial budgets at 8 percent of gross or projected revenue. 

For example, your estimated gross revenue for the year is $1,000,000. We’d take $80,000 and spread it out over 12 months, making adjustments for seasonality. Theoretically, that’s $6,666.66/month, but, you will put more or less into certain months for seasonality. 

This is to set the foundation for your channel experiments, which can then be scaled up or down once you get data and can start to optimize based on your learnings. We like to start lean with lower budgets and then prioritize and scale up based on results.  If, like most startups, you are cash strapped, you can also start with 5% per month and tie that spending to concrete, measurable deliverables. 

Here’s what we’ve seen work the best for finding a test budget: 

• Ideal: 5-8% of projected revenue for channel optimization
• Funded: 5-10k for testing 2-3 channels at once
• Bootstrapped: 2-3k for testing 1 channel at a time 

This structure isn’t perfect but it will help you understand what you need in the bank to prioritize campaigns to quickly drive key learnings and get data that’s statistically significant to your marketing.

Step 2: Customize your budget based on your specific goals 

You probably have an idea of what realistic projections look like for your business: how long it will take to scale, what growth rate is acceptable, and what profit margins are normal within your industry. 

You can use this information to narrow in on your marketing budget, too. 

B2B: Essentially, what is your acceptable CAC and how many customers do you need to show healthy growth? If your CAC is $1,000 and you need 880 clients by the end of the year, you know, at a minimum, you need $88,000 in your marketing budget to start. 

B2C and Ecommerce: Essentially, what is your acceptable CPS and how many sales do you need to show healthy growth? If your CPS is $25 and you need to sell 3,520 products by December, you need to be in the $80k budget range to start.  

Here’s an example for a budget I worked on this week. 

The details: 

• I got this message on Slack from one of Tuff’s clients: 

• Instead of starting with a budget and backing into the numbers, we worked with our team to start with a revenue target. We agreed on $105,000 total revenue for a 10-day stretch in May. This would be a 200% increase in revenue from last year. From there, we were able to calculate a plan.  

The budget and plan: 

Since we’ve been working together for 6 months, we have:

1. Historical conversion rates (17% from install to purchase)
2. Data by channel for this company

Starting with revenue targets, we plugged this into a plan to see how much we needed to spend to hit our goals. In this scenario, we know that to hit $105,000 at our current conversion rates, we need to spend $35k across a variety of channels. 

This gives us an initial ROAS of 300% with a much higher return when we calculate LTV. 

Step 3: Set benchmarks by channel 

In the above example, we had historical data from the last 6 months which made it easier to allocate spend. You don’t have to have your own data to build marketing projections though. 

Industry experts and blogs can help you compile accurate benchmark data for the channels you want to test. We use this channel benchmark spreadsheet internally at Tuff to start and make adjustments depending on the industry and what we’ve seen from running hundreds of campaigns. 

Here are some of the best resources to leverage for getting benchmarks to sub for your historical data. 

• Google Ads Benchmarks [WordStream]
• YouTube Benchmarks for CPC, CPM, and CTR  [Adstage]
• Instagram CPM, CPC, & CTR Benchmarks [Adstage]
• The 2019 Google Ads Industry Benchmarks [Instapages]
• Google Shopping Ads Benchmarks for Your Industry [Search Engine Journal]
• Snapchat Ad Prices [Ad Age]
• Influencer Marketing Price Guide [MediaKix]
• LinkedIn CPM, CPC, & CTR Benchmarks [AdStage]
• Apple Search Ads Cost [Split Metrics]
• Reddit Ads vs. Quora Ads – The $2,500 Experiment {Bannersnacks Blog]
• What’s a Good Pinterest Click Through Rate [Fat Stacks] 
• Pinterest CPMS [DIGIDAY]

This data will help you understand what to expect and help you come up with realistic (and smarter!) allocations. 

Make sure you are tracking the right metrics  

One of the most vital parts of growth marketing is assessing data. Having those numbers in front of you helps you make informed decisions about everything from product adjustments to marketing campaigns. Without this data, you’re just guessing.

Before you dive too deep into budget, you have to set up conversion tracking and analytics. Start by identifying and measuring the metrics critical to your company and then make sure you’re set up to track each campaign. 

Focus on collecting actionable data 

When you’re testing new channels and setting your experimentation budget, it’s not about just getting results. We understand that when you look at businesses like Facebook, Uber, and Airbnb, it can be tempting to imagine that they have uncovered some secret sauce for instant success, and you just need to figure out the recipe.

Well, the thing is that you have to start somewhere, and you have to get data that’s significant to your company. Here are the five steps:

• Start with a testing budget (see figure out your starting point)
• Experiment with new channels
• Figure out what works and what doesn’t work
• Quickly retool your approach
• Then attack every possible angle to unearth that hidden growth potential

If you want more info on CAC or CPS estimates based on how successful certain channels have been for clients, schedule a free growth marketing strategy session with our team today. We’ll analyze your marketing, product, metrics, and business to help you build a growth marketing strategy mapped to your goals. 

Ellen Jantsch

Ellen is the founder at Tuff and one of the team’s core growth marketers. She is a versatile marketer with expertise in multiple channels – from ppc to seo to email to others – responsible for the experiments and testing.  She is happiest when she’s on the ski hill or outside pointing her mountain bike downhill.