s a SaaS startup, you know that marketing is essential to your success. But how much should you be spending on it? And what should you be spending it on? In this blog post, we will break down the essential components of a SaaS startup's marketing budget. We'll discuss the different factors you need to consider and discuss the importance of having a marketing budget plan in your journey as a startup SaaS company. So read on for all the info you need to create an effective and affordable marketing budget for your SaaS company!
Key Points:
· SaaS Startups: Market your Company
· Marketing Budget Planning: Is it really important?
· SaaS Marketing: How much should you spend on it?
· Areas to Consider in your Marketing Budgeting and Planning
SaaS Startups: Market your Company
In the past, purchasing software was a complex and time-consuming process for businesses and individuals. You had to buy floppy disks or CDs, then install the software on every computer that needed to use it. Now with SaaS (Software As A Service), you can quickly access new applications through a browser with just a few clicks of a mouse.
SaaS (software as a service) means that users access the software through their internet browser or a web-based app. The software maker hosts their product on their own servers, which is why SaaS products are sometimes referred to as a “hosted solution” or “web-based solution.”
Because SaaS is a huge industry, you've undoubtedly heard of or used numerous SAAS companies, such as Salesforce, Uber, and DocuSign. By 2023, SaaS sales and market value are expected to top $208.1 billion, 17.5% over the growth of the market in 2022.
Establishing your SaaS company includes formulating your marketing plan and laying out your budget for it. Being an integral part of starting up, the main goal of this plan is to reach out to potential customers and persuade them to buy your software product. This can be done by developing a website and advertising your software on platforms such as email, social media, or LinkedIn. After acquiring customers, you must make sure they are content with your solution so that they continue using it.
A SaaS marketing strategy, when compared to a regular marketing strategy, doesn't seem like it should be very different. You have a product that you promote, and market in order to sell it to customers.
However, unlike other types of products, you cannot physically hold a SaaS product. Therefore, to successfully sell these types of products, you need an innovative marketing strategy specifically for this purpose: enter SaaS marketing.
A SaaS marketing strategy focuses on selling SaaS products in a (mostly) digital space with a focus on digital channels and content marketing. Marketing efforts need to stand out in the fast-growing market of SaaS products to attract new customers that will sign-up for the long haul.
Marketing Budget Planning: Is it really important?
Without a budget, you cannot have a successful marketing strategy. A vital component of choosing marketing projects is managing their ROI. If you don't comprehend your unit economics, there's the potential to overspend and waste time expanding areas that aren't giving returns. For example, Pets-com during the 2000s wasted $300 million in 9 months by mostly spending its marketing fund on unsuccessful ads. Also, various small SaaS companies could also fail to invest properly, thereby losing opportunities for growth by being unnecessarily thrifty with their marketing expenses.
Few things are as crucial to a SaaS company as developing and following a marketing budget for these principal reasons:
· You can track your expenditures and ROI more easily.
· It makes you focus on high-impact marketing ventures.
· It allows you to strategically allocate resources and ensure that you are reaching the right prospects with the correct messages.
· It aids in your staying ahead of the competition, who are likewise likely to invest in marketing.
The solution is easy to understand: invest in effective channels. However, this can be difficult to put into practice. While SaaS businesses at the beginning stages might not be able to take this route, those experiencing growth need to study data on revenue progress and increase their marketing efforts and resources for tried-and-true channels and methods.
SaaS Marketing: How much should you spend on it?
A marketing budget is a road map of expenses your company has planned to spend on marketing activities. You've probably heard it suggested that a firm should put 10% of its income towards marketing. It's a rule of thumb often stated that software-as-a-service firms should allocate around 10% of their revenue to marketing.
Many software-as-a-service entrepreneurs are unaware of which costs should be included in their marketing plan, according to some industry experts. And devising a SaaS marketing plan and budget is not simply about numbers. Equally as important is understanding the industry, your brand, and your customers.
SaaS companies have to spend a greater portion of their revenue on marketing, especially when they first start and are trying to establish themselves in the market. In the first three years, they will spend 80-120% of their revenue on marketing, but by year five that number levels off at around 40-50%. This is a huge difference from traditional businesses.
The amount of annual revenue that successful SaaS companies spend on marketing ranges from 40% to 100%. This figure varies depending on the company’s specific circumstances and is higher for newer solutions. These rates are especially aggressive for firms that have venture capital backing. Companies that have successfully told their story and marketed their features well typically spend 50% of Their revenue on marketing. For example, in 2020 Salesforce spent 46% of its total revenue on sales and marketing, according to its annual report.
Areas to Consider in your Next Marketing Budgeting and Planning
· Contract Value
Most people believe that when allocating a budget for SaaS, it is best to match the sales and marketing expenditure with the first year's annual contract value (ACV). In other words, initial investments would be high but worth it in the long run as future years produce more pure profit.
Though it may seem easy at first, there are complexities that come with any new business. For example, when you spend your entire company's ACV in its first year on sales and marketing, a lot of money will be lost initially. Make sure to have enough saved up so that your SaaS business can survive the tough beginning months.
· Expected return
SaaS companies often ponder how much they will receive back for their marketing investment and if increasing their investment will result in a higher return. While that is understandable, there is no definite answer. Depending on the tactic or activity, some marketing efforts take longer to show results than others.
For instance, a marketing strategy that emphasizes branding will take longer to accrue results than one focused on generating leads. As a rule of thumb, most marketing plans start slowly but build momentum over time. This increase in ROI is due to several factors: all the different facets of the plan working together and complementing each other, as well as targeting campaigns with appropriate messaging for defined demographics.
· Customer lifetime value
CLTV, or customer lifetime value, is a metric that measures the average revenue generated by a customer over the course of their relationship with your company. To calculate CLTV, you simply take the average length of time a customer remains with your company and multiply it by the average monthly revenue generated per user.
Disregarding this metric is common among SaaS founders and marketers. They fail to realize how profitable every customer could be, or what the average period users will continue their subscription. Without acknowledgment of referral and free marketing power (the more customers that refer friends, the higher LTV), any SaaS business may make suboptimal decisions.
For example, if on average users stay with your company for one year and generate $69 in monthly revenue on Average 69*12=$828 then your CLTV would be $828. This number is important because it allows you to predict how much you can afford to spend on marketing and acquisition costs without losing money in the long run.
To put it another way, you might say, "I can even afford up to $20 per new customers", instead of, "I can only spend $12 acquiring each new customer", because you know that after one year they will have generated enough profit from your business to cover the acquisition costs multiple times over.
· Other considerations
In addition to general SaaS marketing costs, you should also factor in product/service launches, new market entries, and mergers/acquisitions when building your budget. The percentage of revenue spent on marketing may need to be increased for these additional expenses; for example, the average SaaS company spends 20% of their revenue on marketing whenever they launch a new product or service.
Also, when creating a budget for marketing, it is important to note that businesses that offer products or services to consumers should always set aside a higher percentage than companies that only market to other businesses.
Conclusion
Coming up with a SaaS marketing budget is difficult, and there’s no one-size-fits-all answer. With so much variation in the industry, your number will be unique to your brand. Most importantly, knowing what you want to achieve will help you set the right budget for your company. By having specific goals for your business and working with marketing professionals, you can figure out how to get the most value for your money.
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