You’re prepping for the annual budgeting meeting. Your CEO shoots you an email to preempt the discussion: “How much budget do you need for marketing?”
“As much as I can get…” you think.
But what do you say?
The best budgets, of course, are based on data – and that’s what your CEO will be looking for (if you’re the founder / CEO / budget-decision-maker, it’s what you’re looking for).
But there’s a lot of data out there. And, as a result, there are a few different answers to this question.
Let’s dig into some of the most common answers so that you can have a place to start. From there, we’ll land on the general principle that will allow you to set the best budget possible.
“B2B SaaS companies should spent 8% of their total revenues on marketing.”
This metric comes from a few prominent studies that suggest the average B2B business spends about this much on marketing and sales.
Likely based on studies, the U.S. Small Business Administration goes as far as to codify it:
“As a general rule, small businesses with revenues less than $5 million should allocate 7-8 percent of their revenues to marketing. This budget should be split between 1) brand development costs (which includes all the channels you use to promote your brand such as your website, blogs, sales collateral, etc.), and 2) the costs of promoting your business (campaigns, advertising, events, etc.).”
Note that the 8% figure accounts for all marketing – if you want to get more specific and break out digital marketing, most adherents to the 8% rule preach that the majority (around 75%) of SaaS marketing spend should be digital.
This is probably the most generalized solution, but it’s not a bad baseline to consider.
“B2B SaaS companies should spend 40% of their growth delta on marketing.”
This answer is more tailored to the SaaS space – and a little bit more technical.
If you aren’t familiar with the term “growth delta,” no shame. It’s simply a term for the amount of growth you want to achieve. For example, if you’re currently bringing in $10 million in AAR and you want to get to $20 million, your growth delta is $10 million. 40% of that, of course, would be $4 million.
Obviously, this method of budget-setting is predicated on growth. Seeing as most SaaS companies are planning to grow, it works – but if your business is relatively stable, this solution isn’t a great one.
“B2B SaaS companies should spend as much as they can on marketing without losing money.”
I love this quote from Jason Lemkin (a SaaS founder and venture capitalist):
“No matter what the model says, you should spend $1 in marketing to make $1 in ACV [Annual Contract Value] wherever and whenever you can. And maybe even a lot more than that.”
The general idea is that, as long as you can stay ROI-neutral with your marketing spend – you should keep spending. Customer lifetime value, the thinking goes, will outweigh annual contract value. Plus, the more customers you bring in, the more referrals you’re likely to get.
So as long as you’re not losing with your marketing spend, you’re winning.
The right answer: Your marketing spend should align with your marketing goals.
The truth is that none of the models listed above accounts for all of the complexities of your business. When you get asked to set a B2B SaaS marketing budget, your numbers are meaningless if they aren’t tied to your business model realities and your marketing objectives.
So, as you set your budget, you need to clarify your objectives.
- Are you selling enterprise B2B software (huge deployments with built-in services)? Or are you selling almost-B2C software (user-centric, low-price point offerings like Slack or MailChimp)?
- How many demo requests or free trial signups do you need to drive?
- How many monthly active users are you attempting to get?
- What should your churn rate to be?
- What’s your bottom-line revenue goal?
- What percentage of growth will come from software and what percentage will come from services?
The answers to questions like these will shape what marketing tactics you need to employ – and that, in turn, will shape how much you need to spend in order to do it.
Want to get numbers that are more concrete?
We can help.
At New North, we’re one of the top B2B marketing agencies in the US. We’ve helped B2B SaaS firms to build user bases, drive more sales, and grow with marketing spend that makes sense – and we’re confident we can help you, too.
Schedule a free consultation and let’s get into the specifics, so you can craft a B2B SaaS marketing strategy that stands out from the pack and gets you the results you’re looking for.
Fill out our contact form, and let’s start putting together a marketing budget that will satisfy your CEO – and drive results that will satisfy everyone.