Determining the effect of marketing on a SaaS company’s growth is not black and white – it is not acas simple as one may think. A lot of factors need to come together in order to create a successful and growing SaaS company. However, no matter how innovative and affordable your SaaS is, without sales and marketing the chances of growth for SaaS companies are slim to none. Before we start, let’s have a quick look at what main expenditure you should plan to achieve your end SaaS goals in a more effective way.
SaaS expense ratios: Research & Development vs Sales & MarketingIf you look at separate cases, you will notice that there’s no one R&D or S&M spending principle all companies follow. Minimum or maximum amount doesn’t exist either: all we can calculate is the average number. But since you insist on asking how much should be allocated to R&D as a percentage of revenue, SaaS experts will have to ask you a few questions:
- 1) Are you a small, medium or large enterprise?
- 2) Are you a product-driven or sales-driven company?
- 3) Are you planning to work on your software improvement or increasing sales in the near future?
Marketing budget for SaaS companies: 4 steps to a sucesssful decisionAnalyze your previous campaigns – Experience is the best teacher. If you have previously launched ad campaigns, influencer or affiliate marketing campaigns, look back and fairly evaluate – did you reach higher ROI? If the best best copywriter and designer worked on your ad banner but you have just lost money, it’s time to invest in more rewarding channels. Let the market inspire you – “A smart person learns from his mistakes, but a truly wise person learns from the mistakes of others.” Who are “others”? Of course, your SaaS competitors or marketing consultants who have worked with SaaS companies. They have already invested money, have tried strategies and know what is worth spending, what not. You deserve a gold medal if you discover exactly how many US dollar is your competitor’s marketing budget. But that’s really hard if not impossible to reveal. Your second option is to contact a marketing agency who has partnered with SaaS companies and knows the industry inside out. Depending on factors like are you B2C or B2B, are your plans low-price or high-price, how much revenue you expect, your agency’s growth specialists will tell you where to invest. Then, you can implement your marketing agency’s strategy on your own or let them bring your customers to your door. Invest in channels with long-term visibility – It’s not a secret that paid ads on Google or other search engines are rewarding. It’s not a secret that they have powerful targeting and bid optimization options so you find the right people and don’t lose money. But it’s also not a secret that your PPC ads aren’t lifetime. You paid for them, you are visible. You stopped paying, nobody finds you with keywords. That’s where content marketing takes the stage. You wrote a super guide, you can promote it as much as you can. From social media to online communities. And if you keep on producing high-quality pages at a regular interval, you will have big chances of ranking on search engines.Your competitors and keyword tools will tell you which phrases to target. Define your goal (awareness or sales?) – Don’t be surprised, but that’s what you want the most. Reputation or money (that’s what world countries want the most too). In a certain stage, the number of your brand advocates, social media followers, engagement rate matter more than cash. This usually happens when you are new to the market and want to gain popularity and when you are already too famous to worry about users. And want something else. In the other – sales stage what matters the most is the revenue you generate. It can be in the form of repeat sales, upsells, new deals. Depending on what you offer, you should figure out which channels will help you reach your goal. For engagement and higher brand awareness, social media is second to none. With an SMM strategy that includes contests, stories, short posts you can engage users who love entertaining content. For more sales, you should focus on how to design a better referral program, how to write emails to upsell your current users, etc. Time to budget your marketing investments! This is no secret. In fact it is evident among nearly all SaaS marketers and among those enterprise corporations that spend a huge amount of time and money on their sales and marketing activities. Yet, for many mid-level companies, especially SaaS startups, determining what percentage of revenue they should invest into marketing and sales remains a challenge. What percentage of revenue should be allocated to marketing? Should it be 10% of revenue? Maybe 20% to really hit the ground running and get your name out there? Is 12.67% the magic number for success? Your team is probably telling yourselves that it is anybody’s guess, so let’s spend a little bit and see if it is enough, and spend more if it is not. If you are among such companies, then today’s post is just for you. According to Gartner CMO Spend Survey 2018-19, companies spend 11.2% of their revenue on marketing services and more than 60% of them are going to increase their marketing budget in 2019. 10% – this is the magic number that you will probably hear whenever you ask how much of your revenue you should allocate to sales and marketing. However, is that really true for all companies and all industries? No. The percentage of revenue invested into sales and marketing varies by each individual company and industry. For example, companies in highly competitive industries, such as SaaS, retail, consumer products or pharmaceuticals often spend 20 to 50 percent of their revenue on marketing. In 2016-2017, Mindbody (40%), Salesforce (49%), Tableau (58%), Bottomline Technologies (24,5%), Microsoft (17%) and other enormous, well established companies had marketing and sales budgets that were greater than 14% of revenue, some of them spending as much as 50%. So, while the 10% figure may be right for some companies and industries, it is definitely not a one-size-fits-all figure and here are some examples to prove this point: Salesforce, Marketo and Constant Contact are providing marketing and sales management software. They believe in what they are selling and they invest a lot in order to promote their products and grow their business. Just take a look at the size of their investments. Salesforce invests 49% of their revenue into sales and marketing. Think about it for a moment – they invest about half of their revenue on sales and marketing. What do they get in return for such investment? They get growth, success and fame. In 2016 Salesforce grew by about 24% over the previous year. Moreover, Salesforce has 19,7% market share in the CRM industry, which is greater than some of the most well known CRM providers, such as Microsoft, SAP and Oracle. Constant Contact, which is an email marketing company, invests about 38% of their revenue into sales and marketing. In 2014, their revenue was about $330 million, so the investment on sales and marketing was about $125.4 million, which is a huge amount of money. Such an investment resulted in 16% growth over the previous year. Tableau, which is a younger and a smaller company, went public in 2013. Nowadays, it is one of the faster growing companies in the 55-year history of business analytics software, thanks to the demand for visual analytics and, of course, a large investment in sales and marketing. In 2018, Tableau spent almost 60% of its revenue on sales and marketing, which is their key to success. Sales and marketing expenses are considered to be their largest category of operating expenses. From these examples, one thing is crystal clear: 10% is not the magic number for such marketing mavens, who target growth and do so very successfully thanks to their investment in the services they sell. So, for your SaaS company as well, it is safe to say that 10% of the revenue is not enough in order to boost sales and attract more customers to your business. Here are some important things, factors you need to take into account when you are creating your SaaS company’s marketing and sales budget.
What to consider before planning your SaaS marketing budget?
Annual contract value
Customer lifetime value