It’s a sad fact of marketing life that your budget is often at risk, and when the company wants to make a saving, the marketing budget is usually the first thing that gets slashed. In 2018, most marketers increased their marketing budgets, but 8% of marketers still expected to see a decrease. While those 8% were suffering, 46% looked to be getting a budget increase, something that could push them, and their companies, even further ahead.
The benefits of marketing for SaaS companies are clear – more leads and a more productive sales team results in more growth for the company. But while that might be obvious to the marketing team, others in the company may not see it that way. As such, it’s important to be able to present your results and forecasts in a way that can show a value that decision makers at the company can understand.
How much should you SaaS marketing budget be?
One strategy would be to dedicate 40% of your planned revenue growth delta. For example, if Company A wants to grow their annual recurring revenue (ARR) from £1million to £2million, they should allocate £400k towards marketing their SaaS product (40% of estimated growth).
But it depends:
Are you looking to promote an established product or launching a new one?
What are your growth targets?
The true figure will differ from company to company, but we'd recommend spending at least 20% of revenue on your marketing.
Understanding your SaaS marketing budget
Typically, a SaaS marketing budget will range from 10% to 40% of a company's forecast annual recurring revenue (ARR). This will also depend on whether or not the company is new or established, with start-ups needing to spend a greater proportion of their gross revenue on marketing.
Proving Marketing ROI
A notable report from 2012 suggested that 80% of CEOs do not trust marketers, while at the same time, 90% of them do trust their CFOs and CIOs. The reason? CEOs feel that marketers aren’t focused enough on the financial realities of the business, in particular, ROI. It comes down the cold, hard financial calculation: is marketing spend providing a good ROI?
But this also provides an opportunity. If you can prove the ROI of your marketing using terms your CEO understands and appreciates, you can justify and protect your SaaS marketing budget more easily.
Proving marketing ROI can often seem challenging as there are a vast amount of metrics you could use. As such, it’s essential to select the metrics that matter to the stakeholders you’re accountable to and to back those up with a thorough understanding of the market and competition.
The first stage of this is to do your research. Examine what your competitors are doing and what the average marketing spend in your SaaS sector is. Being able to confidently state that other competing companies are spending X% of their revenue on marketing and are growing by X% will help to set the foundation for the rest of your presentation.
The next stage is to identify the metrics that matter. This will depend on the size of your organisation, how developed your sales team is, and what your sales process is. With that in mind, let’s take a quick look at some important performance indicators.
What is Cost per acquisition (CPA)
CPA is a measure of the cost to the company to acquire a new customer. This metric isn’t solely a marketing metric, sales costs are also included. However, it is a key metric as it shows return on investment – a lowered CPA is an excellent step towards better ROI. If you can prove that your marketing efforts are having a positive influence on the cost to acquire new customers, that’s an ideal statistic to present to decision-makers when you need to prove marketing ROI.
How to calculate Cost per lead (CPL)
CPL is the measure of the cost it takes to generate one new lead from marketing. These are the leads that sales will follow up on and hopefully close into customers. To work out this metric, it’s important to define what makes a quality lead together with the sales team. This is because if sales are getting a large number of poor quality leads, you can bet this information will make its way to the ear of your CEO, making this metric a hard one to present.
However, if Sales and Marketing have agreed on what a lead is, reducing the CPL becomes an excellent tool for proving the value of your marketing. If you’re bringing in quality leads at a lower cost, you can work out the amount saved not just per lead, but also per conversion, by multiplying the CPL by the average number of leads needed for the sales team to gain one customer.
What is Customer lifetime value (CLV)?
Customer lifetime value is the average profit your business makes from a customer over the lifetime of their business with the company. Knowing this value is important as you can link it back to the previous two metrics to get the full picture on marketing’s value to your business. If you know the lifetime value of a customer, you can link it back to the CPA and CPL to work out the average monetary value of a lead. You can then work out exactly how much value marketing has contributed to the business.
This kind of data is perfect for presenting to the CEO or board. By showing the exact value and ROI of your marketing, you stand a much better chance of being able to protect your marketing budget.
Reporting on these figures
Once you have the data, you need to present it to the decision makers in your organisation. Begin by recapping what marketing efforts you’ve undertaken and link each of them back to the above figures, demonstrating how much revenue they’ve driven for the business. Next, show them the return on investment for the last year’s marketing budget, highlighting how it has allowed the company to grow.
Don’t stop there, however: make sure to present a strategy for going forward. Show how you intend to spend the budget in the coming year and estimate the return on these marketing efforts. Furthermore, suggest where marketing spend could be expanded to drive even further growth. This will show that you have a solid plan and that you can be held accountable for the money you are given, which will make your CEO more confident in signing off on your marketing budget.