Planning your SaaS marketing budget can be tricky, especially because there's no single answer that works for everyone. The amount you'll need to spend can vary widely depending on your company's size, goals, and the market you're targeting. But don't worry, we have a guide to help you figure it out. Let's get started.

What's a Marketing Budget?

A marketing budget is the amount of money a business plans to spend on promoting its products or services over a certain period, like a year or quarter. This includes everything from ads and social media campaigns to events and email marketing. The goal is to reach more people, attract customers, and grow your business. 

Why Are Marketing Budgets Important for SaaS Companies?

SaaS marketing budgets are crucial for a few key reasons. First, they help you plan how to spread the word about your software to the right audience. Without a budget, it's easy to overspend or not invest enough in the right places. 

Second, having a budget lets you track what's working and what's not. This way, you can put more money into successful strategies and cut back on the ones that don't bring in customers.

Lastly, a well-planned marketing budget ensures that you have a steady flow of marketing activities throughout the year, keeping your brand in people’s minds and ahead of the competition.

How to Determine Your SaaS Marketing Budget

When planning your SaaS marketing budget, there are three main models you can use to figure out how much to spend. Let's break down each one:

1. As a Percentage of Revenue

This model involves setting your marketing budget as a certain percentage of your total revenue. It's simpler compared to the other models.

For instance, if your company makes $100,000 a year, and you decide to allocate 20% to marketing, your marketing budget would be $20,000 for the year. The percentage can vary, but many SaaS companies use 15% to 25% as a guideline. 

2. Based on Operating Expenses (OPEX)

With this approach, your marketing budget is a part of your overall operating expenses, which include costs like salaries, rent, and software subscriptions. This model is useful for startups and newer companies that might not have a lot of revenue to base their budget on yet. It allows you to prioritize marketing as a fundamental part of your business operations, assigning it a fixed portion of your total expenses.

3. By LTV-to-CAC Golden Ratio

LTV (Lifetime Value) is the total amount of money you expect to make from a customer throughout their relationship with your business. CAC (Customer Acquisition Cost) is how much it costs you to gain one new customer. The LTV-to-CAC ratio helps you understand the balance between what you spend to get a customer and what they're worth to you in the long run. A healthy ratio is considered to be 3:1, meaning the customer's lifetime value is three times what you spent to acquire them. 

How Much Do SaaS Companies Usually Spend on Marketing?

The amount SaaS companies spend on marketing can vary widely. Here’s an average SaaS marketing budget breakdown to give you an idea:

Average SaaS Marketing Budget

Most SaaS companies allocate about 15% to 25% of their revenue to marketing. This range can fluctuate based on the company's growth stage, market conditions, and specific business goals. For a company earning $1 million in annual revenue, this means a marketing budget of $150,000 to $250,000 a year.

Large SaaS Marketing Budget

Large SaaS companies, which have more resources and a bigger customer base, might spend a lower percentage of their revenue on marketing compared to smaller companies, simply because they can achieve the same impact with a smaller proportional spend. However, in absolute terms, their marketing budgets are significantly larger, often running into millions of dollars annually. They might allocate around 10% to 20% of their revenue on marketing. So, for a company with $50 million in revenue, the marketing spend could be between $5 million to $10 million annually.

Small SaaS Marketing Budget

Small SaaS companies or startups, especially those focused on rapid growth, might spend a higher percentage of their revenue on marketing to build their customer base and market presence. It's not uncommon for these companies to allocate 20% to 50% of their revenue on marketing efforts. For a small company making $200,000 in revenue, this translates to a marketing budget between $40,000 to $100,000 a year.

Will I Be More Successful if I Spend More on Marketing?

Spending more on marketing doesn't always guarantee more success. The effectiveness of your marketing spend depends on how wisely you use it. Here are a few things to consider:

Quality Over Quantity: It's better to spend money on high-quality, targeted marketing efforts that reach your ideal customers than to spend a lot on broad, unfocused marketing that doesn't resonate with anyone.

Strategic Planning: Success comes from planning your marketing activities carefully and aligning them with your business goals. You need to know who your customers are, where to find them, and how to communicate your value to them effectively.

Tracking and Adjusting: Spending more on marketing can lead to success if you're continuously tracking the results and adjusting your strategies accordingly. Knowing what works and what doesn't allows you to invest more in successful tactics and cut spending on those that don't perform well. Also, when adjusting consider market conditions and what your competitors are doing.

Summary

Deciding on the right B2B SaaS marketing budget involves understanding different models like percentage of revenue, operating expenses, and the LTV-to-CAC ratio. While average spending ranges from 15% to 25% of revenue for most companies, the exact amount should depend on your growth stage, financial health, marketing goals, and industry benchmarks. Also, keep in mind that spending more on marketing doesn't automatically lead to success; it's about how effectively you use your budget.

Looking to get the most out of your SaaS marketing budget? Falconics is here to help. We specialize in creating targeted, efficient marketing strategies that drive growth without breaking the bank. Contact us today for more information about our services.