Welcome to the first edition of the state of EdTech marketing report
We believe that understanding how EdTech marketing functions are evolving as well as receiving meaningful insights into what’s happening on the ground are fundamental for both EdTech entrepreneurs and investors.
We surveyed 50+ CEOs and CMOs based mainly in Europe, US & Israel, all targeting different customer bases and we also selected 12 publicly traded EdTech companies* to contrast some of the results with our respondents’ answers. The results provide a holistic view of the state of EdTech marketing and we hope they will allow EdTech players to optimise their distribution strategies.
A huge thanks to all the CEOs and CMOs who took the time to provide their valuable feedback. 🙌
*List of selected publicly traded companies: Pearson, New Oriental Education, K12, Grand Canyon Education, Career Education Corp, Bridgepoint Education, American Public Education, Chegg, Rosetta Stone, 2U, Cambium Learning, Pluralsight Instructure, 3P
**Self-report results - There might be an overlap between EdTech startups targeting government and schools
Marketing budget
On average EdTech startups allocated 11.5% of their annual revenue to their marketing budget in 2018, while publicly traded EdTech companies invested 24.8% of their revenue in marketing efforts last year (2017)
As companies grow in terms of revenue, it tends to become more expensive to fuel growth and the marketing budget as a % of revenue increases
Unsurprisingly, EdTech startups serving the consumer space (B2C) require greater marketing efforts to stand out from the crowd (15.8%), whereas the startups serving other customers are all in the same ballpark (7%-10%)
Organic vs. paid marketing budget split by customer segment
Across EdTech verticals organic marketing (i.e. SEO, inbound, etc.) is the most common strategy implemented – it is a healthy trend as organic marketing helps companies lower CAC and increase overall marketing efficiency in the long-run
Paid marketing tends to be higher for startups that are targeting consumer 👪 and schools 👩🏫 – a possible explanation could be that (1) these two verticals are more competitive and/or (2) these markets are still in their early life (especially schools) and are not consolidated yet, meaning that general awareness around EdTech solutions is currently being built and users are being educated about the category
The most effective channels
Referral, organic search and social media are currently the most effective lead generation channels
While most marketing channels for EdTech startups are similar to those in other industries, events are an unusually effective strategy for EdTech startups, a channel which does not usually make it to the top 5 in other industries
Marketing channels involving human contact (i.e. referrals, events, partnerships, phone) appear to be highly relevant for EdTech startups in generating leads
The three most significant barriers to marketing success
I) Inadequate budget (19%) – Marketing budgets are highly correlated with annual revenue generated, which means that if revenues increase, marketing budgets will consequently increase and vice versa. EdTech is getting more competitive, putting pressure on marketing efficiency and increasing the importance of adequately allocating a marketing budget to deliver more efficient acquisition strategies.
II) Lack of automation of processes (13%) – Marketing automation platforms (i.e. HubSpot, Marketo, etc.) are powerful tool if implemented effectively. Marketers have rushed towards automation in the last few years but many have failed because (1) a large percentage of companies are simply not ready for such tools, (2) all leads tend to be nurtured equally, thus making the automation inefficient, and (3) the integration with existing marketing technology (e.g. Salesforce) usually requires complex procedures.
III) Lack of brand awareness (13%) – Brand awareness is an important factor that drives consumers’ decisions and in today’s crowded market, services/products need to be remarkable in order to stand out. A branding strategy is usually not a marketing priority at a company’s early stage (unless branding is part of founders’ DNA) as startups focus on generating leads in order to gain traction and prove product-market fit.
Marketing priorities for 2019
While current marketing trends are leaning towards “playing it safe” by focusing efforts on customer retention over customer acquisition (thus increasing LTV and decreasing churn rates), the EdTech startups surveyed are following a different path by concentrating primarily on customer acquisition. With constant pressure on revenue and margins, it comes as no surprise that lead generation and funnel conversion made it to the top of the list as the highest priorities for 2019.
Revenue vs. marketing budget
There is no magic to it, spending a significant percentage of revenue on marketing is required to see growth in EdTech. Optimising marketing spending can drive real growth over time and it seems that reaching the 5M-15M€ revenue range represents an inflection point where revenue starts to grow faster than marketing expenditures.
On average, marketing to revenue ratio for a private startup is 8X while it is 3X for mature EdTech companies (i.e. publicly traded companies).
Revenue growth targets 2017 vs. 2018
The average of revenue growth targets for EdTech startups between 2017 and 2018 was 2.9X. Surveyed EdTech startups tend to lower their revenue target growth as they grow and become more mature - Startups in the in the revenue range of 0-500k€, 500k-2M€ and 5M-15M€ were the ones with highest revenue growth targets (>3.5X) whereas those in the 2M-5M€ and 15-50M€ ranges, had the lowest revenue growth target (<2X).
In contrast, publicly traded EdTech companies grew their revenue on average by 1.05X between 2014 and 2017 and publicly traded non-EdTech companies (i.e. Netflix, Spotify, Amazon, Facebook) grew by 1.30X during the same period.
EdTech marketing of tomorrow – Key trends
The past few years have introduced a level of disruption and competition never experienced before in the EdTech space, forcing players to fully embrace marketing to remain competitive. Based on general marketing trends and what we’ve discovered in this research, we expect that as companies grow, and as the EdTech sector matures, delivering frictionless customer experience and creating authentic branding will become paramount. These two marketing dimensions are already on top of the priority list of CMOs in other industries (e.g. FinTech, HealthTech, etc.) since they are increasingly important not only in attracting and retraining customers but also in SEO and other forms of organic marketing.
💁♀️ Enhanced customer experience
EdTech marketers will need to keep their customers’ feelings in mind in order to (1) create strong customer experiences that pleases them, (2) master customer journeys and (3) understand the intent, interactions and signals that increase conversion and drive long-term growth. Interestingly, SEO experts are expecting that the future of SEO will primarily rely on user experience. Therefore, ranking #1 in Google will require companies to provide great user experiences and achieve high user satisfaction, without forgetting classical ranking factors.
🕶 Authentic branding creation
Customer journeys are no longer linear and people are bombarded with tons of information so a brand equity can heavily influence the purchase decision making process. If people trust a brand, they tend to become loyal advocates, which contributes to organic growth. According to Google, mobile searches for “brands like” have grown over 60% in the past two years (2016-18), which indicates that branding is very important factor to consumers. As stated in the 2018 Edelman Trust Barometer, 70% of the worldwide population trusts the education sector, second only to technology. EdTech entrepreneurs will certainly want to surf on that trust wave by leveraging impactful branding.
We’d love to receive your feedback on this report and connect with EdTech players who deeply understand marketing mechanisms, so please reach out (info@brighteyevc.com) to chat and share your insights.