Along with a marketing strategy, you need to create a SaaS Marketing Budget. You may have often heard that a business should allocate 10% of its revenue to marketing. However, for SaaS companies, the percentage of the marketing budget is usually higher. This is specifically true in the initial phases when you are not well-known in the market.
On average, within the first three years of its lifecycle, a SaaS company spends 80-120% of its revenue on marketing. The marketing budget generally levels off at about 40-50% by the fifth year.
Before we get into how to set up the SaaS marketing budget, let us first analyze what is meant by the SaaS marketing budget.
What is a SaaS Marketing Budget?
A SaaS marketing budget is a schedule of expenses your business plans on spending for activities related to SaaS marketing. These budgets are generally generated on an annual basis. However, for hypergrowth, the marketing budget is formed quarterly or monthly.
When creating a SaaS marketing budget, what expenses are a part of it? The marketing budget generally encompasses the following aspects:
- Social media marketing
- Online advertising (e.g., Google Ads, Facebook Ads, etc.)
- Customer Relationship Management (CRM)
- SEO & SaaS Marketing Content Services
- Outreach and influencer marketing
- Marketing automation solutions
- Lead capture and generation
- Data collection and analytics
The budget expenses include the cost of software tools and hiring new employees. Moreover, it also includes paying for advertising and SEO agencies.
Why is the SaaS Marketing Budget Important?
Have you ever thought about why your SaaS company needs a marketing budget? Let us examine some factors that make the SaaS marketing budget necessary.
A SaaS marketing budget allows you to track your spending and expenses. It ensures you get a good return on investment (ROI) for your marketing efforts. Moreover, the budget allows you to be strategic about your marketing efforts. This helps you to focus on initiatives that have the most significant impact on your company.
The marketing budget allows you to distribute resources appropriately. It ensures you are targeting the relevant prospects with the right messages. This helps you to stay ahead of the competition among other SaaS companies.
Without a proper budget, creating a working marketing strategy is nearly impossible. A critical aspect of selecting a marketing project is managing its ROI (ROI). Without understanding the economics of your budget, you might overspend and waste time growing channels that are not providing any returns.
You can look at the example of the crash of Pet.com. In the early 2000s, the startup burned $300 million in less than nine months by spending most of its marketing budgets on ads which did not bring any results.
Similarly, without a marketing budget, small SaaS firms can also underinvest. This undermines their growth since they are incredibly conservative with their marketing spending.
The key to any marketing budget is quite simple. You should invest and spend money in channels that work. However, SaaS businesses in the initial stages may not have this advantage. They need to analyze insights on revenue growth and evaluate their marketing spending from the budget.
How to Set the Saas Budget Correctly?
Have you finally decided to create a SaaS marketing budget? If so, you need to keep some guidelines and considerations in mind. Let us examine how you can set up the SaaS marketing budget correctly.
1. Only Outsource What You Can Manage
The fundamental strategy for setting up the budget is to outsource carefully. You should not spend money on search advertising if you cannot afford an advertising expert. The expert’s responsibility is to manage the marketing spend and hold the team accountable. Therefore, do not pursue search marketing if you can not find such an advertising market. In short, you should not spend time on tactics that can not be benchmarked or measured.
2. Look at the Bigger Picture
When developing the budget, do not compromise quality over quantity. It is essential not to deteriorate the quality to be able to do more. Remember, spending less on quality aspects of your business is better than spending more on the required business aspects.
3. Do Not Cut Corners
It is fundamentally important not to cut corners when developing the marketing budget. A typical marketing strategy is not to start with content marketing or paid advertising. This should not be done unless you have a solid infrastructure to follow up with the prospects.
Do not allot any portion of your marketing budget to promoting unengaging content is essential. It is advisable not to promote content that does not engage your audience.
4. Set Your Marketing Budget Guidelines
It is essential to set guidelines for your marketing budget according to the targets you want to meet. Some budget guidelines use a percentage of revenue to set guidelines. This is done since most startups are required to capture the market share fast.
Other marketing startups are expected to achieve profitability as soon as possible. It is recommended to set the budget for the aspects of the business that will capture the market share. This helps to drive your percentage allocation of the marketing budget.
5. Spend Reasonably
While configuring the marketing budget, please do not spend money unless you can manage the things you spend it on. For instance, if you do not have social marketing experts, do not allocate your budget toward Paid Search or Social Advertising. This strategy will help you save money and set your budget on the aspects of your business.
6. Annual Contract Value
The Annual Contract Value (ACV) plays a significant role in the SaaS marketing budget. It concerns the marketing budget SaaS companies spend in the first year of a contract. Many experts suggest matching sales and marketing efforts with the first-year Annual Contract Value (ACV).
ACV ensures that money spent in the first year will produce profit in the upcoming years. However, it may not be that straightforward as it sounds. When you spend all your company’s first year ACV marketing, a lot of money is utilized. In your marketing budget, you must ensure you have enough capital to survive the first year of business.
7. Expected Return
When setting up your marketing budget, you may consider how much you expect to receive in return. Considering how much the increased investment will bring a high return is essential. Some marketing activities require more extended periods to get reasonable returns.
For instance, let us consider your marketing strategy focused on branding. At some point, you will need a more extended period to see results than a lead-generation strategy. In your marketing budget, you should only focus on marketing activities that deliver exponentially increasing returns.
8. Customer Value
This is one of the metrics many forget when setting up a SaaS marketing budget. Many SaaS founders do not calculate how profitable their customer is. Similarly, they do not consider the average period users use their SaaS services. Thereby, in the marketing budget, they do not acknowledge the power of referral and free marketing.
It is crucial to consider customer value and satisfaction when developing your budget. Being short of this vital information can lead to the development of an unrewarding marketing budget.
9. Invest in Search Engine Optimization (SEO)
SEO is one of the most effective and robust ways to market your SaaS business. According to one source, organic traffic has a closing rate of 14.6%, and outbound leads have a 1.7% close rate. When you optimize your content and website for the search, you can engage more organic traffic. Therefore, investing in a SaaS SEO agency should be an essential component of your marketing budget.
10. Connect Marketing Metrics to Your Budget
If your business is early, a marketing activity intends to attract new customers and subscribers. You should include the best marketing activities in your budget that generate significant leads. This ensures that funds are spent appropriately and invested in the right areas of your business.
Initially, defining a SaaS goal aims at improving your business growth. This type of goal evaluates the necessary marketing strategies and budget. Connecting the best marketing metrics and connecting them to your marketing budget helps to improve your business growth.
When setting up your marketing budget, you should consider the common SaaS goals:
- Improving brand equity and presence
- Boosting sales to current customers
- Discovering a new market
It is essential to review your marketing metrics and budget. You should adjust your marketing goals and allocate the budget for high-performing metrics for the best results.
11. Analyze The ROI Of Every Business Activity
As your business moves forward, you should evaluate which marketing activity moves the business toward the set goals. Therefore, you should consider allocating sources to only those marketing activities with the desired Return on Investment (ROI).
Does your business require converting leads? Could the same investment be spent on PPC or Webinars? You can ask such questions and decide what aspects of your business are necessary to include in your marketing budget.
Marketing is a mix of activities that change over time. Therefore, over time, you should adjust your marketing activity by analyzing the ROI of your business activities. Always remember that your marketing activities can evolve and should be changed in the budget accordingly.
12. Hire The Best Marketing Team
When hiring the marketing team, ensure every member understands your SaaS business. The team should know how to generate a relevant marketing strategy and execution plan.
Is hiring in-house marketing employees better than outsourcing your marketing work? Hiring experts with specific experience in creating the marketing budget could be a strenuous job. It is recommended to outsource your marketing tasks since it is more cost-effective. Not only is it less expensive, but you can get help from the best experts remotely.
13. Align Marketing Budget With Your Tasks
A good strategy is to put a calendar in front of you and align your marketing budget. You can create estimates and check again what marketing budget will be needed compared to the actual spending.
As a general overview, the first and second quarters are pretty strong for SaaS companies. The third and fourth quarters could be slower due to holidays. You can set up your marketing budget according to your tasks and workload.
On Average, What Is The Marketing Budget for a SaaS Company?
The marketing budget for any SaaS company needs to be more than just awareness building. It includes recurring revenue and how to grow it to offset acquisition costs.
According to one estimate, SaaS companies spend between 10 to 40% of their revenue on marketing. SaaS companies should consider spending between 15 and 25% of their annual income on marketing. This ensures the invested money is well spent on marketing.
Your company should not spend less than 15% of annual revenue. If it does, you may be at a disadvantage with other SaaS companies. Although it may be effective for a while, spending less money would not guarantee any results.
The marketing budget for SaaS companies is usually based on the revenue growth delta of a company. Let us look at an example to give you an estimate. If your company expects to grow by 80%, your estimated marketing budget should be around $1 million.
How Much Do SaaS Companies Spend On Marketing?
Have you ever thought about how much SaaS companies spend on marketing? The most successful SaaS marketing budgets are reported to be around 80% and 120%.
According to a venture capitalist, the marketing budget of the companies can be slashed to about 50% by the fifth year. In other words, if the marketing budget is spent well in the initial years, it pays off well.
For companies that are not that successful, it is crucial to consider how much revenue a SaaS company generates. Generally, SaaS companies making from $1 million to $10 million should spend around $10,000 to $15,000.
Successful SaaS companies often spend a lot of money on inbound marketing. Blogging generates 60% more traffic and twice as many leads as other types of content. Through inbound marketing, companies establish themselves as an expert.
The big Saas players, such as Salesforce, Marketo, and Constant Contact, spend much of their budget on marketing. For instance, Salesforces spent nearly half the budget or 49% of their revenue on sales and marketing.
Have you ever thought about why established SaaS companies spend almost half their budget on marketing? What do they get in return? The answer is simple; they bring growth, fame, and success.
In 2016 alone, Salesforce grew about 24% more than the previous year. Similarly, Constant Contact spent 38% of its revenue on marketing and sales. In 2014, their income was about $330 million, while the budget for marketing was about $125.4 million. Their investment resulted in a 16% growth over the previous year.
Tableau is another such SaaS company that believes in spending money on marketing. Its successful marketing strategies have made it one of the fastest-growing companies in its 55-year history. In 2018 alone, Tableau spent almost 60% of its revenue on marketing and sales. This became their key to success, and it is now one of the most popular SaaS-based companies.
1. What is a SaaS marketing budget?
The Software as a Service (SaaS) marketing budget is a list of your expenses for your business plans and activities that are concerned with marketing.
2. What is the annual contract value?
Annual Contract Value (ACV) is the total revenue which comes from an individual customer for a fiscal year.
3. Do sales and marketing efforts work together?
Yes they do. Sales and marketing can work together to produce the best results for your SaaS business.
4. What is the average marketing budget of the well-established SaaS companies?
The average marketing budget of the big SaaS companies is almost half of their total budget.
5. What is the minimum amount of budget your company should spend on marketing?
According to experts, the minimum budget your company should allocate for marketing should be more than 15%.
The Bottom Line
There is no absolute number on how much a company should spend on marketing and sales. It differs for each business since they might have different goals and strategies.
Are you not sure if you are spending enough on marketing and sales? If so, ask yourself these two questions:
- Are you investing enough in marketing and sales to achieve your growth goals?
- Are you investing enough to ensure your brand stands out from its competitors?
According to a famous Austrian-American consultant, Peter Drucker, Business has only two functions- innovation and marketing. Keeping this in mind, you should spend heavily on your SaaS sales and marketing.