Startup costs for a business

Why is it important to understand startup costs?

When you're caught up in the excitement of a new business idea, it's easy to overlook the financial details. Getting a clear picture of your startup costs is essential for several reasons, all of which are critical to your company's long-term health.

As you think about expenses, startup costs fall into two categories: one-time expenses (incorporation, equipment, initial inventory) and recurring operational costs (salaries, rent, software subscriptions).

For fundraising, a good rule of thumb is to give yourself about 18 months of runway — to develop a minimum viable product or reach your next milestone — before you’ll need to raise money again. You can refine that estimate further by doing research on successful companies that are similar to yours to see how much they are raising.

The good news is that wherever you are, starting a business is cheaper than it used to be thanks to things like AI, coworking spaces and cloud services.

What are typical costs for startups?

Startup costs can range from $10,000 to $500,000+ depending on your business type, with employee salaries consuming 50-75% of most startup budgets. Essential expenses include salaries, benefits, office space, technology infrastructure, marketing and administrative costs.

How do you calculate startup costs? Begin by listing all anticipated expenses, including salaries, benefits, marketing, technology, office and administrative to form a comprehensive startup budget.

Salary expenses
If you’re building a B2B startup, you’ll likely need help with sales. If so, you'll want to consider skills as well as cultural fit. Keep in mind that a strong track record at a large enterprise doesn’t always translate to startup success. Your early hires need to be comfortable operating with minimal support infrastructure — no dedicated assistants and no established processes. Cultural fit matters as much as experience when you’re building a lean team, so factor that into your hiring budget and timeline.

Plan for any other key hires you may need depending on what you’re doing, like a merchandiser if you're in e-commerce or a designer if you're building hardware, and hire wisely. Across nearly every startup vertical, payroll is the single largest operating expense. Employee compensation typically accounts for 50–75% of your total operating budget, making workforce planning the most important part of your financial forecast.

Be sure to determine how much you need to pay yourself and any co-founders to make ends meet.

Benefit expenses
Next is the cost of benefits, which can come with hidden surprises. Don’t overlook benefits costs. Health insurance premiums tend to rise annually at rates that outpace general inflation, so it’s important to model escalating benefits expenses across your multi-year financial projections rather than treating them as a fixed line item.

Marketing expenses
Marketing expenses can come in many forms, for example:

• Digital ads
• Discounts and promotions
• Technology needed to support campaigns

Regardless of the type, you’re likely going to have to spend some money to acquire customers. The whole reason for expenses in a seed round is to prove product-market fit, so marketing is going to be a lot of your expenses.

Some digital marketing costs start small but add up as you scale. Cloud tools, for example, allow you to target thousands of customers at a relatively low cost. But if you add in digital ads, make sure to account for the cost per click multiplied by the number of people you need to reach — the bill could rise quickly. You may also need:

• Social media management tools
• Design templates for email campaigns and digital flyers
• Access to press release platforms

You may also need to locate resources to help promote your business by developing content marketing and sales collateral or running events and other PR efforts. Those resources will increase your people costs, while events may also require physical products for booths, giveaways and travel costs for team members attending. Marketing expenses could range from 10-30% of total budget for B2C startups and 5-15% for B2B companies.

Technology expenses
The tech services you may need, in addition to basic productivity and communications tools, could include:

• Website hosting
• Optimization and SEO tools
• Automation apps to link all your services
• CRM for your sales success

Other tech costs potentially include computers and phones. Currently, the trend is for employees to bring their own laptops and phones; however, as your company expands, you’ll need to factor in providing equipment for your workers (an option that will also improve your security posture). 

Another option is to offer a tech stipend instead of purchasing standardized equipment, letting employees choose the devices they prefer. This approach can simplify your IT budget and improve satisfaction, though you’ll want to weigh it against security and compliance considerations as your team grows.

Office expenses
Once you’re staffing up, you’ll need somewhere to put your employees. On that front, things have changed significantly. Many knowledge workers work remotely, reducing the cost for startups. Still, over time you’re probably going to need or want office space for some percentage of your employees. Rents in tech hubs like New York and San Francisco are generally highest, followed by places like Austin, Boston or Seattle.

If you have an office, you’ll need furniture. That expense can be more significant than you might think. Beyond desks and chairs for employees, you’ll eventually need to fit out conference rooms and kitchens as well. 

Administrative expenses
There are some necessary one-time costs as well as some lower ongoing costs that you shouldn’t ignore.

Registering a business typically involves low state fees plus the cost of legal support. If you are creating a C corporation, the recommended option for many startups, you may end up having to pay for a lawyer. Alternatively, you may be able to use legal cloud service platforms to get basic paperwork in place. You may also need lawyers to develop operating agreements and help you understand how to protect your intellectual property.

Keeping the books in order won’t be free. Initially, you could do it yourself using software. But as you grow, complexity will increase fast and you will likely need help to manage your finances and accounting. You should also consider startup insurance, which can add hundreds or thousands to your annual bills. At some point, you may have to spend on services to manage your cap table.

The good news for SVB clients is that they can take advantage of discounts on products and services from our partners. Many of the products and services founders use every day, like the ones mentioned, are available at a discount for SVB clients.

How do you calculate a budget for a startup?

By creating financial forecasts that include various scenarios, you can better prepare for fluctuations in costs and market conditions. When it comes to startup costs, expenses will fluctuate over time. Customer needs may change, which can throw your costs in different directions. Market forces outside your control may cause you to re-examine your plans. Even in the natural course of business, costs may go up and down. That’s why it’s important that your financial forecasts include a base case, a pessimistic scenario and an optimistic scenario.

How to save on startup costs
Starting a business doesn't require massive upfront investment. With strategic planning, you can significantly reduce startup costs while building a strong foundation for growth.

Focus exclusively on expenses that add direct value to customers. Ask yourself, “Does this expense help me serve customers or generate revenue?" If not, it can wait. The following is a list of strategies and tactics for saving on costs as you build your business.

Smart workspace solutions

• Choose coworking spaces or virtual offices instead of traditional leases to save 50-80% on overhead
• Work from home initially to eliminate rent costs entirely
• Use shared conference rooms and business equipment through flexible arrangements 

Strategic staffing

• Outsource key functions like accounting, IT, and HR instead of hiring full-time employees; consider fractional hiring
• Use freelancers for marketing, design and specialized projects
• Save 40-60% on payroll costs while accessing professional expertise 

Equipment and technology

• Buy refurbished equipment to save 30-50% on office furniture and technology
• Use open-source software for email, CRM and office applications
• Take advantage of free software tiers that scale with your business
• Lease expensive equipment to preserve cash flow 

Cost-effective marketing

• Start with content marketing and SEO instead of expensive ad campaigns
• Leverage social media and email marketing for customer outreach
• Build partnerships for referrals and cross-promotion
• Save 70-90% compared to traditional advertising 

Vendor negotiations

• Request startup discounts and volume pricing
• Negotiate payment terms to improve cash flow
• Bundle services for better overall rates
• Everything is negotiable – don't accept first quotes 

Financial management

• Track every expense using accounting software
• Review budgets monthly and adjust based on actual spending
• Build a 10-20% contingency fund for unexpected costs
• Monitor cash flow to identify optimization opportunities

Conclusion

Budgeting for startup costs is critical to your company's long-term health. Take your time to think about all the one-time and ongoing costs you may incur and do some research to understand where you can trim costs — and where you can’t. Getting your budget right will help you get your fundraising target right and give your business better odds to succeed.

The bottom line: raise enough to keep your company alive between milestones. Financial planning isn’t a one-time exercise — revisit and revise your budget regularly as operating conditions change. Make sure your fundraising target reflects your current burn rate and leaves enough runway to reach your next critical milestone.

FAQs

How much does it cost to start a startup?
Startup costs can typically range from $10,000 to $500,000, depending on industry and location. 

What percentage of startup budget goes to salaries?
Employee salaries and benefits consume 50-75% of most startup budgets. B2B companies average 60%, while consumer startups may allocate up to 75%.

How long should startup funding last?
Plan for 18 months of runway between funding rounds. This provides sufficient time to reach key milestones and demonstrate traction to investors.

What are the biggest startup expenses?
The top five expenses are: (1) Employee salaries and benefits (50-75%), (2) Office space (10-15%), (3) Marketing (10-30%), (4) Technology (5-20%), (5) Administrative costs (5-10%).

How can startups reduce costs?
Cost reduction strategies include remote work (saves 30-50% on office costs), equity compensation, freemium software tools and outsourcing non-core functions. SVB clients can save money by taking advantage of partner offerings.