How Much Do SaaS Companies Spend On Marketing?

How Much Do SaaS Companies Spend On Marketing
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How Much Do SaaS Companies Spend On Marketing?

 

This is a common question that SaaS companies face when allocating their marketing budget. There are many factors to consider when making this decision, such as the size of the company, the stage of the product (pre-launch, MVP, PMF, Growth-Phase, Hyper-scaling), and the growth goals of your marketing team.

Generally, B2B SaaS companies will allocate a more significant portion of their marketing budget to paid search (Google Ad or Bing Ads) and paid social media advertising than traditional companies. This is because any SaaS product is often sold through digital channels, so these platforms can effectively reach your potential customer.

Additionally, a B2B SaaS product usually has a longer sales cycle than other products, so keeping your brand top of mind throughout the entire process is essential.

Before you set a marketing and advertising budget, you need to have a deep understanding of the SaaS market in the SaaS industry and your growth goals. A team of experts who can create targeted marketing campaigns and messages will help ensure your SaaS product stands out from the competition. If you’re setting a budget for a marketing channel like paid media like paid social, video advertising, or paid search, you can ensure success by:

  • Evaluating the market search volume for your product/service to fuel your product marketing.
  • Knowing industry averages around CPA/CPL benchmarks across paid social, paid search, and every key SaaS marketing metric for media channels like Display Ads, YouTube, or Native Advertising (Taboola)
  • Defining your pipeline stages to set clear revenue goals is rooted in understanding your conversion rates from MQL to SQL to Revenue.

When allocating your SaaS marketing budget, every brand has no one-size-fits-all solution. The best approach is to assess your company’s unique business goals and then decide based on what will work best for you.

However, remember that paid search and paid social media advertising are typically more effective for SaaS products than traditional marketing methods. Hiring a team of paid media and inbound marketing experts is also a wise investment. Considering these factors, you can ensure that your SaaS company is well-positioned for success when creating an advertising budget.

 

As a rule of thumb, you should look to spend at least 9-24% of your ARR on advertising/marketing initiatives, not including team salaries, and after you hit PMF and you’re past 100M+ ARR. However, according to Tomasz Tunguz from Redpoint Ventures, during your first 3 years, you should reinvest 80%-120% of your revenue or available capital on sales/marketing activities. After 5 years, it’s a plateau of around 50%-70% if you want to maintain the right T2D3 growth trajectory and get to unicorn status. 

 

What is the Average SaaS marketing budget in 2022?

How Much Do SaaS Companies Spend On Marketing By Sector?
See differences between SaaS sectors for B2B and B2C companies.

The average SaaS statistics heavily depend on the company industry, total ARR, number of employees, and company sector (B2B, B2C). You can review the marketing spending reports from Deloitte’s Latest CMO survey results from 2022 and Gartner’s Annual CMO Spend Survey 2022. 

Investment in marketing channels is constantly changing, and the big takeaways at the moment from the Gartner report are:

  • CMOs are going to increase spending on MarTech and increase reliance on MarTech.
  • Protect digital channels as they drive the most significant impact on the bottom line.
  • Marketing budgets are climbing back, but there’s no going back to 2019.
  • 9.5% is the marketing budget as a proportion of company revenues in 2022.
  • 72% of CMOs surveyed reported that their budget had increased the prior year.
  • Budgets are back to 9.5% on average, but still a few percentages below pre-covid numbers.
  • 87% of CMOs have met their goals or exceeded them, according to Gartner’s report.
  • Key Issue Take-Away: CMOs adapt to a post-lockdown, hybrid channel environment.
  • More than half of digital spending was allocated to paid channels.

 

SaaS marketing budget allocation between different digital channels can be complex.

 

There are a lot of factors to consider when allocating your SaaS marketing budget, but one of the most important is what channels will provide the best return on investment (ROI).

There are many different digital marketing channels available to SaaS marketers, each with its own strengths and weaknesses. Paid media, such as pay-per-click (PPC) advertising, can effectively generate short-term results but can also be expensive. Inbound marketing, which focuses on attracting visitors through SEO and content marketing, can be more cost-effective in the long run but may take longer to generate results.

PPC and SEO are a trade-off between long-term and short-term results rooted in MRR velocity, channel performance, and correct data attribution. The best way to allocate your SaaS marketing budget will depend on your specific goals and objectives.

 

These are 8 general tips that can help you get started with marketing budget planning:

 

1.  Start with a smaller budget for paid media and scale it out over time after your measure your first results in your first 3 months.

2. Focus on organic SEO and inbound marketing channels in the early stages of your SaaS product’s launch to build up momentum outside of PPC (Google Ads, Bing As, Facebook).

3. Shift your marketing budget to content production and SEO once your product is established. Think YouTube channels, Podcasting, blogging, and build out your assets as you pivot your marketing budgets to evergreen content. Over time this is how you scale in the most cost-efficient way with valuable content. Look at brands like Hubspot and Salesforce and their revenue growth trajectory. They were on a T2D3 growth trajectory and their marketing budgets were typically around the 50% mark of their ARR.

4. Social media management should be a part of your SaaS growth marketing strategy, but it doesn’t have to be expensive. As your followers grow, you can look to contractors or freelancers on UpWork, expert social media management agencies, or boutique agencies specializing in social media management.  

5. Influencer marketing can effectively reach new audiences and promote your B2B SaaS product, but it can also be expensive. Try to find influencers who are a good fit for your product and are willing to promote it for a reasonable price. Suppose you’re too busy to search for and negotiate with the correct critical influencers in your niche. In that case, you can hire an influencer marketing agency to find the right influencers that suit your brand ethos and drive awareness and consideration for your SaaS. Influencer Marketing is typically done after you achieve PMF.

Trying to scale your product messaging too early can be detrimental before you get PMF, as you’ll get a ton of confusing market signals from your potential customers. This confusion can lead your engineering team to focus on the wrong product features and slow down your growth. Running lean and defining a specific core audience early on is key to positioning yourself appropriately in the marketplace before you go after additional market segments. If you have a ton of VC money to invest upfront and want to scale your message to audiences post PMF, this is the right time to do it. Ideally, after 2-5M+ in ARR is when you hit PMF (product-market-fit).

6. Always test different channels to see which ones work best for your B2B SaaS product. There is no one-size-fits-all solution to marketing, so you may need to experiment with a few different channels before you find the ones that work best for you. Try out Quora Ads, TikTok, Facebook + Instagram, Twitter, YouTube Ads, Display Advertising, Programmatic media buying + ABM, Podcasting appearances/partnerships, and connected programmatic TV ads.

7.  Keep track of your results using Data visualization Dashboards like Datastudio, PowerBI, or Tableau and adjust your budget accordingly based on results. You may have to shift your budget from one channel or another as you see more results from one medium. Speak to your sales team to understand what’s driving qualified quality deals and SQLs, and maintain a clean CRM database to get a sense of what channels are driving the most significant impact. 

The most important thing is constantly measuring your ROI and making necessary changes. This will help ensure you get the most out of every marketing dollar with your SaaS marketing budget.

8. Consider your MarTech budget. What marketing tech you need to execute your initiatives will depend mainly on your growth goals, team size, company size, VC funding vs being boot-strapped, and your B2B SaaS digital marketing maturity.

Your tech should be able to evolve and mature with your brand’s digital marketing maturity. Consider long-term growth goals and how your tech will scale with your marketing initiatives. Think about your CMS (content management system) and ABM tools (Account-Based Marketing tech). Consider how AdTech (advertising platform technology like the Google Marketing Platform) and DMP (data management platforms) will help accelerate your digital marketing maturity so you can measure the most revenue impactful marketing metrics. Add reporting tools (Datastudio, PowerBI, Tableau, Google Analytics, Adobe Analytics) and other data sources that need to be connected to make a sound business optimization decision. 

When it comes to allocating your SaaS marketing budget, there is no one-size-fits-all solution. The best SaaS marketing budget for your company will depend on several factors, including your industry, target market, KPIs, marketing goals, and marketing initiatives planned (this usually stems from your marketing strategy as a whole).

That said, you can follow some general guidelines when creating your SaaS marketing budget. Here’s a look at allocating your SaaS marketing budget between paid media, inbound marketing, advertising, influencer marketing, SEO, content production, and social media management.

 

Check out this simple SaaS marketing budget template

Paid media should make up the most significant chunk of your SaaS marketing budget. Why? Because paid media is the most effective way to reach new audiences and generate leads right out of the gate while you build out your SEO program (inbound marketing) to support annual growth targets in the future.

When it comes to paid media, you can pursue a few different options, including paid search, display advertising, and social media advertising (paid social). You’ll want to experiment with different paid media channels to see which generates the most business leads.

Typically paid search is a promising avenue but can be very costly to maintain in the long run. You’ll have to measure your customer churn rates to see the CAC and how much you genuinely allocate to paid search (search engine marketing) on Google Ads, Yahoo! Gemini, or Microsoft Ads. 

 

Inbound Marketing:

Inbound marketing should be your second-biggest SaaS marketing expense. Why? Because inbound marketing is all about generating organic traffic from people who already show intent in your product or service and are looking online for answers to their woes.

You’ll need to produce high-quality, helpful SEO content that answers people’s search intent. This approach will attract qualified and quality traffic to your website, which can drive the pipeline. Once they’re on your site, you can then convert traffic into leads, and leads can become MQLs (marketing qualified leads) and (sales-qualified leads) SQLs through effective remarketing, sales outreach (account-based selling), ABM, and CRO. 

 

Traditional Advertising:

Traditional Advertising should make up a smaller portion of your SaaS marketing budget. That’s because traditional advertising is generally less effective than other marketing channels, like paid media and inbound marketing.

Traditional advertising can still be a valuable tool for generating brand awareness and leads. If you allocate some of your SaaS marketing budgets to such advertising, target your ads using geo-fencing to ensure they reach your target audience. This type of advertising can help with your ABM initiatives as part of your ABM GTM playbook.

You could use Traditional billboards to target a trade-show event or specific target accounts within a specific zip code you’d like to market to. For instance, why not combine geo-fenced display ads with billboards on the highway next to the Salesforce office or other big brands you’re trying to reach with your ABM initiatives?

 

Influencer Marketing:

Influencer marketing can also be a helpful tool for promoting your SaaS business. However, it’s important to note that influencer marketing can be pretty expensive. You’ll want to allocate a smaller portion of your SaaS marketing budget to this channel after you hit PMF. 

 

SEO and organic content production for inbound marketing:

SEO should also be a crucial part of your SaaS marketing strategy. However, it’s important to note that SEO can take a while to produce more robust results over time.

Low-cost, inbound efforts are essential to fuel growth over the long-term so consider that the fastest we’ve seen content rank on the first page is 2-3 weeks and as much as 2 years for the most competitive terms in the software space. You’ll want to allocate a reasonable portion of your SaaS marketing budget to this channel.

 

Content Creation:

Content creation is another critical aspect of SaaS marketing. After all, you’ll need high-quality content to attract visitors to your site and convert them into leads.

Depending on your resources, you may want to produce all of your content in-house or outsource some of it to third-party content creators. Whichever route you choose, allocate enough of your SaaS marketing budget to content production.

You can look at publishing and distributing content on a variety of mediums like various podcast platforms, social media, and video platforms, as well as look to RSS feeds and other content syndication methods to amplify the brand message to the right audience segments.  

 

Social Media Management or Community building:

Finally, don’t forget to allocate some of your SaaS marketing budgets to social media management or community building (Facebook groups, LinkedIn groups, or traditional Forum type groups).

While social media can be a great way to connect with potential customers, it does require time and effort to maintain an active presence and build an active community.

As such, you’ll want to hire someone to manage your social media accounts or allocate a portion of your time to this task. Either way, budget for social media in your overall SaaS marketing strategy.

These are just a few of the most essential SaaS marketing budget considerations. By carefully allocating your SaaS marketing budget, you can ensure that you’re making the most of your marketing efforts and generating the best possible pipeline for your B2B brand.

 

SaaS marketing budget benchmarks across different company sectors and ARR:

 

The following chart shows how different SaaS marketing budgets compare to one another. Note that these figures are based on data from the company sector, # of employees, annual company revenue (ARR), Total company revenue, and company industry. The report outlines average marketing budgets across various B2B SaaS companies from howtosaas.com.

What are the typical B2B SaaS Marketing Costs in 2022?

The average SaaS company spends between 9% and 18% of its revenue on marketing. However, the most successful companies sit at an average of around 50%-53% regarding their marketing spending. This includes Hubspot, Salesforce, and Tableau, whose market share has soared over the last decade. 

Considering that most successful SaaS companies spend a large portion of their revenue on marketing, companies that spend less than that are at a significant disadvantage compared to their peers.

It would be best if you answered the following questions about your B2B SaaS company before you begin to consider what the correct budget percentage should be for your SaaS:

  • What are your current SaaS marketing expenses and potential liabilities?
  • What’s your intended MRR and quarterly growth for the next 12 months?
  • What’s your Customer Lifetime Value (CLV)?
  • How do your revenue churn rates look, and how will that impact your growth plans
  • What’s your Annual Recurring Revenue (ARR)?
  • What are your business growth goals?
  • What is your growth potential?
  • Who will carry out your content marketing?

 To grow at a T2D3 growth rate, you must consider a marketing investment of 50% or more of your ARR to get hockey-stick growth.

  

What is the right SaaS startup marketing budget?

 

The answer to this question depends on several factors; the size and stage of the company, the industry, and the competitive landscape. However, some general guidelines can help companies determine how much to spend on marketing.

For example, SaaS companies typically spend 5-15% of their total revenue on marketing. This means that for a company with $1 million in annual revenue, the marketing budget would be $50,000-$150,000.

Another way to think about it is customer acquisition costs (CAC). For most SaaS companies, the CAC should be less than three times the lifetime value of an existing customer (LTV). So if the LTV is $1,000, the CAC should be less than $3,000.

Of course, these are just general guidelines, and there is no one-size-fits-all answer to the question of how much to spend on marketing. The best way to figure out the proper marketing budget for your company is to experiment and track the results of your campaigns. With time and data, you’ll be able to fine-tune your marketing strategy and find the right level of investment for your business.

 

How much should your SaaS Company marketing spend be in 2022? 

Median Spend By SaaS Company Size
Check out the SaaS company median spend breakdown by each department from SaaS Capital

As the software-as-a-service (SaaS) industry continues to grow, so does the competition for market share. To stay ahead of the curve, it’s essential to have a solid marketing strategy, including knowing how much to spend on marketing. Generally, the most successful companies spend about 50% of the ARR on marketing to achieve T2D3 growth. In contrast, according to Gartner’s 2022 report, most others are more comfortable spending around 9-15% on marketing campaigns out of their total ARR. 

So, how much should your SaaS company be spending on marketing in 2022? 

Here are a few factors to consider to set better budget targets for faster revenue growth: 

  • How much revenue do you want to generate next year every quarter?
  • How much do you want to grow your customer base every quarter?
  • What are your channel’s key marketing objectives, KPIs, and OKRs?
  • What is your growth delta, and how close are you to achieving the T2D3 growth curve?
  • What channels are your competitors pursuing that you need to have a presence on?
  • Do you want to achieve hockey-stick growth within 5 years, or are you ok not doing that?

 Remember that your marketing budget should be flexible and adjusted based on your company’s goals and objectives.

The bottom line is that there is no one-size-fits-all answer to this question. But by taking the time to consider all the above factors, you’ll be in a much better position to make an informed decision about your marketing spending.

 

 

Common FAQs in the B2B SaaS space when it comes to setting marketing budgets

 

What is Rule of 40 in SaaS?

 

The rule of 40 is a simple way to measure the health of a software-as-a-service (SaaS) business. The rule of 40 states that a company’s combined growth rate and profitability should not exceed 40%.

To calculate the rule of 40, simply add together the company’s growth rate and profit margin. If the sum is greater than 40%, then the company is considered to be in good health.

The rule of 40 is a helpful metric for investors to assess whether a SaaS company is doing well or not. It is also useful for companies to track their progress over time.

There are a few different ways to measure growth rate and profit margin, so it is vital to know which metrics you use when calculating the rule of 40.

One way to measure growth rate is by looking at the year-over-year revenue growth. Another standard metric is monthly recurring revenue (MRR). 

Profit margin can be measured in several ways, but one standard metric is gross margin. Gross margin is calculated by subtracting the cost of goods sold from total revenue, then dividing by total revenue.

The rule of 40 is a helpful tool for measuring the health of a SaaS business. However, it is essential to remember that it is just one metric amongst many. As with any metric, it should be used alongside other measures to get a complete picture of a company’s performance.

 

How much do SaaS companies spend on R&D?

 

There is no one-size-fits-all answer to this question, as the amount of money SaaS companies spend on R&D varies depending on factors such as company size and sector. However, some research suggests that SaaS companies spend a higher percentage of their revenue on R&D than other software companies.

One study found that, on average, SaaS companies spent 20% of their revenue on R&D, compared to 15% for traditional software companies. This difference is likely because SaaS companies often have shorter product cycles and need to invest continuously in new features and functionality to stay ahead of the competition.

Another study found that the top 10% of SaaS companies spend an average of 35% of their revenue on R&D, while the bottom 10% only spend an average of 5%. This again highlights the importance of R&D investment for SaaS companies. 

So, while there is no definitive answer to how much SaaS companies should spend on R&D, it is clear that this investment area is critical for success in the competitive and fast-paced world of SaaS.

 

 

What percentage of revenue should be spent on customer success?

 

The answer to this question depends on the specific situation of the company in question. There are no hard and fast rules, but there are some guidelines that can be useful.

Generally speaking, a good rule of thumb is to spend around 3-5% of total revenue on customer success. This will ensure you have enough resources to keep your customers happy and engaged.

Of course, this is just a general guideline. Some companies may need to spend more or less depending on their circumstances. For example, a company with a very high churn rate may need to invest more in customer success to reduce churn.

In general, it’s important to remember that customer success is an investment, not an expense.

 

What percentage of revenue should be spent on customer service?

 

It’s no secret that customer service is vital to the success of any business. But how much should you actually be spending on it?

While there’s no magic number, most experts agree that spending around 5-10% of your total revenue on customer service is a good rule of thumb. That may seem like a lot, but remember that happy customers are likelier to stick around and continue doing business with you. They’re also more likely to recommend you to others.

So if you’re not already investing heavily in customer service, now is the time to start. Your bottom line will thank you for it!

 

What is a good SaaS margin?

 

This is a difficult question, as many factors impact a company’s margins. However, some experts suggest an excellent SaaS margin is around 70-85%. This means that for every $1 of revenue, the company should have a profit (or net income) of $0.70-0.85 cents.

Of course, not all companies can achieve this level of margin. For example, younger companies may need to reinvest their profits into the business to fuel growth. Companies with high research and development (R&D) costs may also have lower margins.

Ultimately, it is up to each company to determine what margin level is right for them. Some may aim for a higher margin to maximize profitability. In contrast, others may be willing to sacrifice some margin to reinvest in the business or keep prices low for customers.

 

What is a good EBITDA for SaaS?

 

This question doesn’t have a simple answer, as there are many factors to consider when determining how much EBITDA (earnings before interest, taxes, depreciation, and amortization is “good” for a SaaS company. These factors include the company’s size, growth stage, profitability, research and development (R&D) spending, and more.

Let’s look at general guidelines for what might be considered a good EBITDA for SaaS companies. For early-stage startups, it is not uncommon to see negative EBITDA as they reinvest heavily in R&D and marketing to grow the business. As these companies mature and start to scale, they often become profitable and generate positive EBITDA. For more established companies, a good EBITDA margin is typically around 20-40%.

Of course, there are always exceptions to these rules. Some SaaS companies may have higher or lower margins depending on their business model and other factors. Ultimately, it’s up to each company to determine what is a good EBITDA for them.

Thank you for reading our blog on SaaS marketing budget. Don’t forget to download your SaaS marketing budget template with budget estimates.

 

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