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What is the annual spend for startups or young companies on market research (surveys, focus groups, etc)
Based on our computations, it is likely that the total annual spend on market research of startups or young companies in the United States is around $30.45 billion. The breakdown of this amount, by tool or service used, could neither be found nor triangulated, however. Below you will see how this amount was calculated and why its breakdown is unavailable.
METHODOLOGY
To find your requested information, we first researched what distinguishes startups or young companies from other companies. While there are differences in opinion on what makes a company a startup or a young company, we followed the suggestions of Techcrunch writer Alex Wilhelm and Accelerated Growth Marketing founder Stacy Caprio. Both define a startup as a company with less than 100 employees. Wilhelm has what he calls the 50-100-500 rule: a company is not a startup if it has at least $50 million in annual revenue, has at least 100 employees, or is worth over $500 million. His rule is in line with how research and advisory firm Gartner defines a small business. According to Gartner, a business is considered small if it has less than 100 employees and has an annual revenue that is smaller than $50 million.
PPC Protect Founder and Managing Director Alex Winston has a more conservative definition; he defines a startup as a company that has fewer than 10 employees, has been in business for less than two years, and has less than $250,000 in annual revenue. However, given that Wilhelm, Caprio, and Gartner all used the 100-employee threshold, we decided to use said threshold in our computations.
Our searches for the market research spend of startups or young companies in the United States revealed that while there are reports discussing market research spend, information specific to startups is very limited. We were able to see only one instance where startups were polled about the amount they allocate to market research, and we were able to find this only after expanding our search beyond recently published sources. Though we typically use sources that were published in the past two years, the lack of information prompted us to look at older sources too.
As you may see below, using a few assumptions, we were able to come up with an estimate of the total annual spend on market research of startups or young companies in the United States. However, we were unable to find nor estimate the breakdown of this amount by tool or service used even after an extensive search through reports and articles on market research and its segmentation, startups and their budgets, and small businesses and their budgets.
ANNUAL SPEND
Per Startup or Young Company
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According to page 79 of a report published in 2017 by market research authority Greenbook, most companies with one to four employees spend less than $1 million on research each year, most companies with five to 20 employees spend $1 to $5 million, and most companies with 21 to 100 employees spend either $1 to $5 million or over $5 million. Pages 6 to 9 of the report, however, show that these findings were based on a sample of 2,637 companies from around the world, of which 24.5% were research buyers and 75.4% were research suppliers. Around half of the companies were based in North America.
In an article published in 2017 on the website of business software directory Capterra, on the other hand, Andrew Marder, who has experience in retail management, banking, and finance, wrote that startups should spend up to 20% of their initial investment on market research. He explained that "if you're making a product that no one cares about, you're not going to sell much."
Meanwhile, San Francisco-based innovation-to-market consultancy firm SeriesC polled 41 startups in the fourth quarter of 2014. The results of SeriesC's survey, which were published in 2015, revealed that startups spend around 10% of their revenue on marketing activities. Of the marketing budget, around 3.5% is allocated to market research. B2B and B2C startups allocate roughly the same percentage to market research.
Of these three sources, SeriesC's report proved most helpful. Though the report was published in 2015, it is the only report that contains percentages we could actually use to estimate the total annual spend of startups or young companies on market research. You will see in the succeeding section what we mean by this.
All Startups or Young Companies
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According to the United States Census Bureau's American FactFinder, whose latest release on the number of firms was for the year 2015, there were 5,432,522 employer firms with fewer than 100 employees in the United States in 2015. In that same year, the 5,432,522 employer firms generated a combined revenue of $7.6 trillion or $7,581,067,813,000 to be exact.
Apart from these 5,432,522 employer firms with fewer than 100 employees, there were 24,331,403 non-employer firms in the United States in 2015. These non-employer firms had no paid employees. Together, these non-employer firms generated a revenue of $1.1 trillion or $1,148,715,541,000 to be exact.
All in all, there were 29,763,925 firms with less than 100 employees in the United States in 2015. Their combined revenue was around $8.7 trillion.
5,432,522 + 24,331,403 = 29,763,925
$7,581,067,813,000 + $1,148,715,541,000 = $8,729,783,354,000 or $8.7 trillion
If we apply the percentages provided in SeriesC's report, we can estimate that the total annual spend on market research of firms with less than 100 employees in the United States is around $30.45 billion. This market research spend could be a mix of internal market research efforts and purchased market research reports or services.
With these computations, we are assuming the following:
1. SeriesC's findings in 2015 on how startups allocate their marketing budgets still hold true today.
2. At present, the number of firms with less than 100 employees in the United States and their combined revenue are more or less the same as the number and amount observed in 2015.
3. Firms with less than 100 employees behave in a manner similar to that of the startups described in SeriesC's report.
BREAKDOWN
As mentioned above, how the annual spend of startups or young companies on market research in the United States breaks down by tool or service used could neither be located in the public domain nor triangulated with available information. Nevertheless, we were able to gather insights which you may find helpful.
In 2015, Caitlin Stewart, then Marketing Coordinator at Market Research, wrote about the market research budget of a startup. While she did not provide a breakdown of the market research budget, she discussed the various market research solutions that startups can avail of and these solutions' corresponding average costs. She explained that startups can choose from syndicated research reports, subscription services, and custom research. According to her, syndicated research reports can be classified into top-level reports, full-market reports, and product detail market reports whose average costs are $100 to $1,000, $3,500 to $4,000, and $15,000 to $35,000, respectively. Custom research, on the other hand, costs around $30,000 to $50,000 on average.
The only market research spend breakdown we saw was the one published by market research authority ESOMAR for the year 2017. Page 155 of its report on the global market research industry shows the following breakdown, by research method, of the market research spend in the United States.
Quantitative
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Mail - 0%
Telephone - 6%
Face-to-face - 0%
Online quantitative research - 25%
Mobile or smartphone online quantitative research - 9%
Online traffic or audience measurement - 12%
Automated digital or electronic - 18%
Other - 0%
Total - 70%
Qualitative
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Group discussions or focus groups - 6%
In-depth face-to-face interviews - 0%
Ethnography - 1%
Online research communities - 11%
Other - 0%
Total - 18%
Other
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Total - 12%
Please note, however, that this breakdown was based on a sample of market research firms with over $15 million in annual revenue, as can be seen on page 101 of the report. Page 138 of the report indicates that market research firms in the United States generated a revenue of $19.487 billion in 2016.
CONCLUSION
Our research reveals that the total amount startups or young companies in the United States spend on market research is likely around $30.45 billion. How this amount breaks down by tool or service used could not be reliably ascertained with available information, however.