How Much Should You Spend On Marketing

Creating The Perfect Customer Experience

How much do SaaS companies spend on marketing? The average SaaS company spends between 15% and 25% of its revenue on marketing.

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Does this differ for SaaS companies? According to a SaaS Capital survey, SaaS firms with above-median growth spend, on average, 14% of their revenue on marketing.

Why SaaS Platforms Can Afford To Spend More

The Revenue-Growth Delta Formula

First, the marketing budget for SaaS companies depends on the growth delta of the company. According to Jason Lemkin, a new SaaS company should invest forty percent of the growth delta in its marketing budget.

For example, if a company has an ARR of $1 million, a marketing budget of $800,000 is equivalent to 40% of the growth delta. Once these goals have been set, it will be easier to determine a realistic marketing budget.

Determine Your Budget By Your Data

Another option is to work backward from your goals, starting with how many new customers need to be created by your marketing team.

For example, if your goal is $400k in sales with each new customer generating $1k, your team will need 400 new customers. Next, check your historical data to see what proportion of deals your sales team closes. Let's say this percentage is 1 in 5. You now know that your marketing team needs to create 2,000 opportunities.

Next check the average marketing cost behind your historically generated opportunities, including staff costs and infrastructure. Let's say that this is $50/opportunity - so to create the necessary 2,000 opportunities to make $400k in sales, you will need to budget $100k.

Following The Lead Of Industry Leaders

SaaS businesses of all sizes can take cues from enterprise-level companies with a marketing-first approach to budgeting. Many larger companies spend over 40% of their revenue on marketing.

Companies such as Monday.com and Asana are heading up this trend in 2022, spending 75% and 69% of their revenue respectively. Salesforce, ZenDesk, ServiceNow, and Squarespace come in around the enterprise median of 41% while more established brands such as Shopify and Dropbox are only spending 22% and 17% of their ARR.

The trend here is clear, businesses that invest more revenue into marketing experience faster growth, increasing awareness of their brands and converting more customers. Once SaaS companies are household names, they can reduce their marketing budget, focusing on word-of-mouth recommendations and retaining valued customers to drive high lifetime value.

Where Leading SaaS Platforms Spend Their Budget

• Social media marketing
• Online advertising (e.g. Google Ads, Facebook Ads, etc)
• Customer Relationship Management (CRM)
• SEO & Content Marketing
• Outreach and influencer marketing
• Marketing automation solutions
• Lead capture and generation
• Data collection and analytics

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