A report by Impact Center Venture Analytics found that Canadian startups are not spending enough on marketing and sales functions to drive their business growth.
The report titled: Canadian Tech Tortoises: Is a lack of spending on marketing and sales delaying fundraising? studied 900 private Canadian technology companies that had received external funding. The report found some interesting data. On average, only 24% of employees from the firms studied in the report were engaged in marketing and sales, compared to 36% of employees who were involved in research and development.
As a way of comparison, the report makers also looked at similar startups in the United States. It found that 60 tech companies that were able to scale to USD 10 million in revenue had significantly different figures to those in Canada. In fact, U.S. companies spent 73% more on marketing and sales than they did on research and development.
The numbers show us that Canadian tech companies seem to spend less on marketing and sales than those in the United States that have achieved significant growth. It suggests a bias towards researching and developing solutions but a lack of investment in promoting products and services. This could impact sales revenue, how much funding startups can secure, and ultimately the growth rate.
The report states:
“The lesson for Canadian companies and policymakers is that tech businesses must spend significantly more on M&S employees and other types of M&S expenditures if they wish to reach markets earlier, obtain funding faster, and catch up to their competitors.”
If Canadian businesses want to break the cycle of smaller, slower-growing enterprises, they must address the imbalance of investment between R&D and marketing and sales. Without a good marketing strategy, firms are unlikely to reach their full potential.
One potential reason that many startups in this space struggle with marketing is that they are often founded by entrepreneurs with an engineering or software background, which means their expertise and focus are on product development, they are not natural marketers. With a focus on the product, they believe that producing a robust final output will be enough to grow the company on its own. Still, they forget that competitors are building similar products, and if they are better at marketing, they will grow faster, gain more funding and surpass them quickly.
A common trait in fast-growing companies is that leadership recognizes marketing as a crucial business function because it creates excitement, interest, curiosity, and demand. When a startup doesn’t do enough marketing and sales, they stagnate with fewer resources to invest in product development and have fewer resources available to adapt products to changing market forces and demands.
This brings up the question: How much should growing startups in Canada spend on marketing and sales to drive growth?
Some business books recommend that a young company up to 5 years old invest 20-25% of its expected gross revenue on marketing.
And once you are more established, you’re probably looking at a goal of 12 to 20 percent of your expected gross revenue. However, there’s no set rule of thumb for establishing your marketing budget and investing 20% is not always feasible. If you have a high margin (80% to 90%), you can invest more than if you have a lower margin (10% to 20%). A new business must consider the value of its sales margin when determining how much it can invest in marketing to achieve a specific sales revenue target.
It’s also worth understanding what you need to invest in to fuel growth. The most crucial thing is to have a flexible, long-term investment strategy for marketing. You require a logo, a website, and fundamental branding components in the first year. You can increase your advertising and promotion budget as your business expands. Starting with basics such as branded collateral shouldn’t exceed 5% of your gross revenue.
After that, the most critical step is to develop excellent branded content for your business. Content is the foundation for advertising, public relations, and social media, so if your content is not high quality, you will waste your money in these areas. Focus the most significant chunk of your budget on getting your brand identity and messaging right, developing great content and promoting that content to your ideal audiences through paid and earned placements to educate and nurture your target customers into the sales funnel.
About Aeolus Digital
Aeolus Digital Inc. is a Digital Marketing Agency that offers complete digital marketing services to B2B and B2C companies, supporting Canadian startups with rapid growth. We want leading Canadian companies to be seen and recognized on the world business stage.
For more information on how we could help your business, get in touch with our friendly team.