How Much Should You Spend on Your SaaS Marketing?
When it comes to allocating SaaS marketing budget, most businesses struggle with how much they should be spending. On the one hand, you don't want to blow your entire budget on marketing and not have anything left for actually running your business. But on the other hand, you also don't want to skimp on marketing and end up losing out on potential customers.
So what's the right amount to spend? In this blog post, we will discuss SaaS marketing budgets and give you some tips on how to allocate your funds. Read on!
The marketing of a SaaS company contributes massively on its entire success. You probably haven't heard a lot or entirely at all about businesses that succeed without any marketing efforts, let alone a SaaS company! Have you?
Even some of the largest companies in the world spend billions of dollars on marketing, and SaaS companies are not an exception. In 2016-2017 alone, Microsoft - a well-known tech giant spent about 17% of its revenue on marketing.
Imagine if a company as large as Microsoft is spending that much on marketing, SaaS companies should also have a considerable SaaS marketing budget.
If you think your SaaS is innovative and affordable enough to attract users without spending a lot on marketing, unfortunately, it's not how it works in this industry. SaaS companies have to spend money and time to market their products because there is so much competition out there. If your competitors are doing it and you don't, the chances of your SaaS company succeeding are quite slim.
So, SaaS marketing is not an option but a must for any SaaS company that wants to stay afloat and succeed in this industry.
Research & Development VS Sales & Marketing
Now before, we'll discuss how much you should allocate to your SaaS marketing, first we have to talk about which path your SaaS business should take? SaaS businesses have two options when it comes to their business model. They can focus on Research & Development or they can focus on Sales & Marketing.
You're probably wondering which of the two you should prioritize, is it R&D or S&M?
There are a few questions you should ask yourself in order to help you make this decision:
- Is your SaaS business a small, medium, or large enterprise?
- Do you focus more on products or on sales?
- Do you have plans of innovating your software or expanding your customer base and increasing sales in the future?
Typically, a startup or small SaaS business should focus entirely on research and development. You don't want to cut the line and take the shortcut just to get the numbers you aspire to get. Most of the time, those who take the easy way and do not take the time to research, test, and innovate are the ones who fail in the long run.
On the other hand, if you have a SaaS business that is already established and has been around for a while, or your aim is the number of customers, then your focus should revolve around sales and marketing.
But that doesn't mean abandoning research and development. SaaS businesses have to continue innovating their product in order to keep up with the competition and changing customer demands, which is why a good portion of your budget should still go towards research and development.
How Much You Should Allocate for Your SaaS Marketing
You can't operate a SaaS business without a marketing budget. SaaS marketing is a critical part of acquiring and retaining customers. But how much should you spend on SaaS marketing?
The answer to this question depends on a number of factors, including the stage of your business, your customer acquisition costs, and your overall revenue goals.
If you're an early-stage startup, it could be challenging to determine how much to spend on marketing.
Should it be 10% revenue? 20%? 50%? There is no one-size-fits-all answer. SaaS businesses vary by size, industry, and competition.
According to Gartner CMO Spend Survey 2018-19, companies spend 11.2% of their total revenue on marketing. The median SaaS company spends 20% of its total revenue on marketing, while the high performers spend more than 40% or more.
You probably have read somewhere that 10% is the magic number for SaaS marketing budget. But the reality is that there's no magic number.
It really depends on your business model, stage of growth, competition, and industry.
In 2016-2017, Mindbody spent (40%), Microsoft (17%), Bottomline Technologies (24.5%), and other large companies spent more than 50% of their revenue on its marketing.
Well, 10% could be a good starting point for a SaaS marketing budget for other companies but it doesn't mean it would work wonders on other companies as well.
It all boils down to your SaaS company's specific needs.
Here are a few factors that you need to take into account when allocating your SaaS marketing budget:
- The stage of your SaaS business
- Your customer acquisition costs (CAC)
- Your overall revenue goals
- The size of your SaaS company
- Your SaaS company's industry
- The level of competition in your SaaS market
Once you have a good understanding of these factors, you can start to allocate your SaaS marketing budget.
Things to Consider Before Planning Your SaaS Marketing Budget
Planning for your SaaS marketing budget can be a complex process. SaaS businesses have to take into account a number of factors before allocating their marketing budget.
Annual Contract Value (ACV)
The first thing you need to consider when planning your SaaS marketing budget is your Annual Contract Value (ACV). ACV is the total value of all contracts signed in a year. This number will be used to determine your customer lifetime value (LTV), which we'll discuss next.
Customer Lifetime Value (LTV)
Your customer's lifetime value (LTV) is the total amount of revenue your business will generate from a single customer over the course of their relationship with your company.
Another important factor to consider when planning your SaaS marketing budget is your expected return on investment (ROI). ROI is a measure of how much revenue you can expect to generate for every dollar you spend on marketing.
To calculate your expected ROI, you need to first determine your customer acquisition costs (CAC). CAC is the total cost of acquiring a new customer, including all marketing and sales expenses.
Once you have your CAC, you can divide it by your LTV to get your expected ROI. For example, if your CAC is $100 and your LTV is $500, then your expected ROI is 20%.
The truth is, there is no exact number for SaaS marketing budget.
It all comes down to evaluation and figuring out what works best for your SaaS company.
So, don't be afraid to experiment with your SaaS marketing. As the cliche says "Experience is the best teacher", SaaS marketing is not an exception.
The best way to find out how much you should spend on SaaS marketing is to try different approaches and see what works for your business.
Don't be afraid to change your SaaS marketing budget as your business grows and scales.
What matters most is that you're allocating enough resources to SaaS marketing so you can acquire and retain customers.
Try different channels, campaigns, and strategies. Measure the results and adjust your budget accordingly.
The most important thing is to keep learning and growing your SaaS business.