Last updated on December 8, 2022
While not all SaaS companies spend the same amount on marketing, it’s clear that even the smallest players need to budget for marketing if they want to be successful.
But how much do SaaS companies really spend on marketing? How much should they actually spend on marketing? I’ve led marketing at various SaaS companies, so I’m going to share my take (from my own experience) as well as pull some data from various sources.
The average SaaS company spends around 30% of its yearly budget on marketing
I’ve spoken to several of my peers at other SaaS companies. Usually, the sales and marketing team is roughly 10-30% of the total team. Similarly, most marketing budgets I’ve worked with were usually around 30% of our total revenue.
Of course, it varies depending on the stage of our business. At a very early stage (<$100k ARR), our marketing budget was just 10% of our total revenue. But during a particularly aggressive growth phase ($1M to $5M ARR) our marketing budget increased to about 50% of our total revenue. However, the rolling average across years came to be about 30%.
When we looked at the data from Meritech Capital, larger SaaS companies spend anywhere between 10% to a whopping 82% of their revenue on marketing.
Here Is What The Top SaaS Companies Spend On Marketing
- The average SaaS company spends around 30% of its yearly budget on marketing.
- Larger SaaS companies often spend closer to 40% on marketing.
- Smaller SaaS companies tend to spend less than the average, but still more than 20%
The truth is that your marketing budget will depend on your business size and goals. It’s best to use a framework rather than simply setting a percentage goal for your marketing spend each year.
How much should you spend on marketing? Is there a framework?
The best way to know how much to spend on marketing is to analyze your CAC and LTV.
What is LTV & CAC? Why do they matter in deciding a SaaS marketing budget?
Lifetime value (LTV) and cost of acquisition (CAC) are two important metrics that help you decide how much to spend on marketing. The LTV is the average amount a customer pays over the lifetime of their relationship with your company, while CAC is the amount it costs to acquire each customer.
($) Average monthly revenue per customer X (# months) customer lifetime = ($) LTV
($) Total sales and marketing expenses / (#) new customers acquired = ($) CAC
The general rule of thumb is that your CAC:LTV ratio should be 3:1. Or simply put, your LTV should be 3x more than your CAC. That usually indicates a great business model, great unit economics and a marketing strategy. For example, if your LTV is $300, then if your CAC should ideally be lower than $100 to acquire customers profitably.
If your CAC:LTV ratio crosses 5:1 then it likely means you’re under-investing in marketing and limiting your growth. That’s usually the time to increase your marketing budget.
Should I be spending this much on marketing?
As a CEO, you probably have a lot on your plate. And while you may not be too keen on hopping on the marketing train, it’s important for you to understand how critical marketing is to your success.
Marketing is often misunderstood. As a CEO, you likely have a lot of experience with product development—you know how it works, who does it and how much time it takes. But marketing can sometimes be viewed as this nebulous activity that’s hard to define.
I was watching Dave Kellog’s talk at SaaStr (highly recommend) and I was shocked to find out that most enterprise SaaS companies today spend 2x more on sales and marketing than product development.
It just shows how important marketing is for any SaaS business.
Start with whatever number comes into your head
We hope that this article has given you some insight into marketing costs for SaaS companies and how much your SaaS company can expect to spend on marketing. As we’ve seen, the answer depends on several factors, including company size and growth goals.
Averages are not helpful. The best way to understand your own situation is look at your past data, analyze it and then extrapolate forward.
I would recommend starting with whatever number comes into your head when thinking about your SaaS marketing budget (but make sure this number is realistic), then do some back checking by analysing your CAC:LTV ratio and make informed decisions from there.
Looking for a SaaS marketing consultant?
As a SaaS founder, you may be considering hiring a marketing consultant to help hit your revenue milestones.
We did a quick rundown on WHAT to look for in a SaaS marketing consultant, HOW much they should cost, WHY they’re worth the investment & WHERE to find the best SaaS marketing consultants.