In the first week of most engagements I do with SaaS Company CEOs, the inevitable question comes up:
What to budget for Marketing?
There are multiple guidelines that people usually fall back on, ranging from % of ARR to one-time, fixed budgets for some of the fundamentals (like getting a website in place).
Every situation is different. Here is how I typically approach this:
- Spend responsibly - Don't spend money unless you can manage the things you spend it on. For example, don't spend money on Search Advertising if you cannot afford someone with the right expertise who can manage this spend with the right focus.
- Build a foundation - Only start things that you can sustain. When you launch a new website, make sure you can keep it fresh and have thought about providing a great experience and service to the visitors. Don't launch an event, a blog, or a series of webinars unless you can keep it going at whatever pace is sustainable for you.
- Look bigger than you are - Don't sacrifice quality just to be able to do more. As a fast-growing startup you want to look bigger than you really are. This starts with credibility, consistency, and predictability.
- Know what you want - The reason guidelines that use a percentage of revenue have broad ranges (some say 6% to 20% of ARR) is that some startups have a mandate to capture share fast (and that's why they got a big Series A funding check), while others are expected to get to profitability as soon as possible. This will drive your marketing budget % allocation.
- Don't cut corners - For example:
- Your team should not start with Paid Advertising or Content Marketing unless you have a solid infrastructure to nurture and follow up with prospects as they start hitting your site.
- Don't run campaigns unless you can do A/B tests.
- Don't promote content that is not good enough to drive engagement from your audience
- .Don't hire young, high energy marketing team members unless you know what they should be working on, and you can provide the right coaching.
After considering the above ideas, it is helpful to use a template to get your first budget in place. This is only a starting point, and it will change over time.
Marketing Spend Report Insights
Marketing expense budgets leveled off in 2018, remaining steady at an average of 11.2% of company revenue (Gartner).
CEOs may value revenue, profitability and market value share, while CMOs may elevate share of voice, awareness and brand metrics to their strategic dashboards. Only 51% of CMOs say they track customer acquisition costs; even fewer (43%) track customer retention or churn rates (Gartner).
Nowadays, good CMOs should align their metrics with the company's strategic priorities. While ROI is harder to measure, it remains a metric worth looking at too. It's easy to get caught up pursuing awareness but customer experience, customer acquisition, and customer retention remain worth tracking as they are the fundamental