SaaS Marketing Budget: Plan for Success | Camel Digital

Have you ever wondered how to strategically allocate your SaaS marketing budget to maximize growth and ROI?

Are you familiar with what percentage of revenue you should re-invest in marketing to ensure sustainable development?

These are not mere questions but vital determinants of your SaaS business’s success.

That’s why our SaaS marketing professionals have collected all the necessary insights and tips to help you plan and allocate your marketing budget effectively.

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Table of Contents

SaaS Budgeting Statistics and Predictions for 2024

As we look ahead to 2024, SaaS budgeting trends are poised for continued evolution. While the SaaS market is big, it is still growing exponentially. According to reports, the global SaaS market has been $197 billion in 2023 and is expected to reach $232 billion by the end of 2024.

To sum it up:

The average SaaS company is anticipated to allocate approximately 30% of its yearly budget to marketing efforts.
Approximately 70% of organizations keep sensitive data in SaaS applications, meaning that security is a crucial component of budget allocation.
According to Gartner, 2023’s $200 billion SaaS spending will grow by 18% in 2024.
The yearly churn rate for SaaS companies that target SMBs is 58%.

These and more numbers mean that businesses across all industries are embracing SaaS PPC applications at an increasing pace. And as competition grows, so does the need to invest in marketing initiatives.

What Percentage of Revenue Should Be Spent on Marketing?

SaaS companies generally allocate an average of 7% to 15% of their annual revenue to marketing.

At Camel Digital, our team of SaaS ad gurus has a secret approach that helps us determine the ideal percentage of revenue to allocate to marketing. With tools like SpyFu and tactics shown to work in our previous campaigns, we help our clients determine their marketing budget allocation.

For a SaaS PPC agency that tries to compete with an industry giant like HubSpot, for instance, we would see that their estimated monthly PPC budget is over $698,000.

We would also look through their Google Ads history to see what worked and what didn’t in the past.

We would then build our estimates from this data.

Then again, note that the calculations for determining the percentage of revenue to spend on marketing differ for every business. Several factors can influence this percentage, each integral to your company’s financial health and growth. Balancing these factors requires a deep understanding of your business model, growth stage, and market realities.

Let’s take a look at each of these factors to determine the ideal percentage of revenue that your SaaS company should allocate to marketing.

Revenue Goals

Your revenue goals significantly shape your SaaS marketing budget. A common practice is to allocate 5% to 15% of your projected revenue to marketing.

However, this figure isn’t set in stone.

Your company’s current growth stage and industry can cause this percentage to vary greatly. For example, a startup in a high-growth phase may invest a larger portion of its revenue in marketing to gain market share and accelerate growth. On the other hand, an established SaaS company in a saturated market might spend less, focusing more on customer retention and upselling.

CAC and CLV

The Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV) are essential metrics that should influence your SaaS marketing budget allocation. Here are the formulas and brief overviews for each to help you calculate your spending:

CAC Formula

The CAC gives you a clear view of the cost-effectiveness of your marketing efforts. If the CAC is high, you’re spending too much to acquire new customers, and it might be time to revisit your marketing strategies.

CLV Formula

In contrast, the CLV helps you understand the value a customer brings over the duration of their relationship with your company. A high CLV indicates a promising return on investment for your marketing spend. Calculating both CAC and CLV is crucial in determining the ideal percentage of revenue to allocate to marketing.

Competitive Landscape

Understanding the competitive landscape is also critical in determining your marketing budget.

If you’re in a fiercely competitive market, you may need to invest more in marketing to differentiate your SaaS product and gain a competitive edge. This investment could be directed towards improving brand awareness, producing high-quality content, or engaging in aggressive advertising campaigns to capture market share.

Competition also affects the CAC, as it may increase your customer acquisition costs. Therefore, a higher marketing budget might be necessary to acquire and retain customers.

Testing

Finally, setting aside a portion of your budget for testing and experimentation is paramount. This approach allows marketing teams to identify the most effective strategies and refine their approach over time. Testing can include experimenting with marketing channels, campaign types, messaging, or audience segmentation.

By analyzing the results, you can continuously optimize your strategies and ensure your marketing budget is used as efficiently as possible.

What’s the Role of the CAC: LTV Ratio?

The Customer Acquisition Cost to Lifetime Value ratio is a key metric used in business to evaluate the effectiveness of a company’s customer acquisition strategy and the long-term value of its customers. For an effective B2B SaaS marketing budget, the optimal LTV: CAC ratio is 3:1, meaning your Customer Lifetime Value should be at least three times your Customer Acquisition Cost.

💡 Pro tip: If your ratio is below 3:1, it could mean that your marketing efforts are not generating enough revenue to justify the cost of acquiring new customers.

On the other hand, a ratio above 3:1, such as 5:1 or beyond, might indicate that the company could afford to invest more in customer acquisition. This higher ratio shows that the company is generating significantly more from each customer than it costs to acquire them, suggesting there may be room to grow the customer base and scale marketing efforts further.

SaaS Marketing Budget Benchmark

Besides CAC and LTV, there are many other metrics that you can use to benchmark your SaaS marketing budget. Balancing your SaaS marketing budget is often akin to walking a tightrope. Depending on your budget set up, various elements factor into this delicate equilibrium.

Aspects like your marketing channels, campaign types, and audience segmentation can significantly influence where your funds are directed.

It’s important to keep an eye on the performance of each and recalibrate your spending as needed. This might mean dialing back spending in one area to focus on more profitable initiatives or increasing the budget for a particular campaign showing promising results.

Here are some of the common SaaS marketing budget benchmarks to help us calculate the optimal budget allocation:

MRR

MRR, AKA Monthly Recurring Revenue, is how your company calculates its revenue stream.

Always make sure to track MRR because it provides a snapshot overview of business growth over time, which can be used both internally and externally. This metric can also help you forecast future growth patterns by extrapolating data from previous months.

ARR

The metric represents the revenue that a company can expect annually. It is vital to understand ARR as it helps evaluate how much your SaaS business has grown over the past few years in aggregate.

ARPU

Average Revenue Per User, often abbreviated as ARPU, is another valuable metric when determining your average SaaS marketing budget.

This measure indicates the revenue generated per user, providing insights into user spending patterns, customer behavior, and the overall health of your SaaS business.

Revenue Churn Rate

How much money are you losing due to customer churn? Revenue Churn Rate is a key metric that measures the percentage of lost revenue from existing customers.

Now that you know the fundamentals of calculating your SaaS marketing budget, it’s time to dive into the more practical aspects.

Examples of SaaS Marketing Budgeting

Easier said than done…

Speaking about SaaS budgets is realistically very simple. But, many companies struggle to set the right budget. Some overspend on aggressive marketing initiatives, while others fail to allocate the necessary funds to achieve their desired results. To help you avoid these pitfalls, let’s look at a few examples of SaaS marketing budget calculations.

Example 1

Suppose you are a SaaS company with an LTV of $10,000 and a target CAC of $3,000. Calculating your marketing budget would look something like this:

LTV ($10,000) ÷ Target CAC ($3,000) = 3.33
Ideal Marketing Budget Allocation (use the 30% benchmark) = 33%

In this scenario, your total marketing budget would be $33,000 to maintain your target CAC.

Example 2

Say you want to calculate the marketing budget based on ARR growth, and the goal is to grow ARR from $450,000 to $1 million. First, you should determine the Growth Delta:

ARR goal – Current ARR = Your growth delta
$1 million – $450,000 = $550,000

Next, decide on the percentage allocation (y%), which is the portion of your growth delta you’ll dedicate to marketing. Let’s say you decide on 15%:

y% to allocate to the budget x Your growth delta = Your marketing budget
Marketing Budget = 0.15 * $550,000 = $82,500

So, your marketing budget is $82,500.

Example 3

Now, let’s calculate the marketing budget for SaaS companies using CAC.

It is usually suggested to have a CAC that is 6-12 times the MRR. In simpler words, 50%-100% of your first-year annual contract value.

For instance, if your first-year contract value is $10,000, your CAC should be between $5,000 to $12,000. Similarly,

If MRR = $1,000
First-year Contract Value = 12 * MRR = $12,000
CAC should lie between 50%-100% of the first-year contract value.

Therefore, your CAC should be between $6,000 to $12,000.

Best Practices and Tips for SaaS Marketing Budget

If you’ve come this far, you know how to calculate your SaaS marketing budget and common benchmarks. But that’s not all – there are still some best practices you should follow to ensure that your marketing budget is used efficiently.

Don’t Undersize Your Budget

One of the biggest mistakes that SaaS companies make is allocating too little to their marketing budget. While saving money may seem smart, it can significantly hinder your growth potential.

When planning your SaaS marketing budget, it’s crucial not to undersize your campaign budgets.

If your cost per click (CPC) is $5 and you’ve only allocated $10 to an entire campaign, your budget will deplete after just two clicks.

This minimal reach will not generate significant impressions, let alone leads or conversions. Essentially, the campaign would be set up for failure before it even gains any traction. Therefore, ensuring that your campaign budgets align with your CPC and overarching marketing objectives is vital to give your campaigns a fighting chance of success.

The solution should emphasize determining the right budget that aligns with the campaign’s objectives and the competitive landscape of the market rather than just depending on automated strategies and spending limits to manage costs.

Allocate Reasonable Daily Budgets for Social Media Platforms

In countries like the United States, where the Cost Per Mille (CPM), or the cost per 1,000 impressions, is significantly higher and more competitive, it’s crucial to allocate reasonable daily budgets for social media campaigns on platforms like Facebook and LinkedIn. Attempting to achieve high-impact results with a minimal budget is analogous to fishing in a very large lake with very small nets.

If your daily campaign budget is only $15, it’s too low for the platform’s algorithm to work effectively. Your campaign won’t get past the learning phase, and you’ll find the algorithm isn’t helping your performance.

The platform needs more money to test and figure out what works best. Without enough money, the algorithm can’t collect enough data to optimize properly. Setting a daily budget that matches your target market’s environment and CPM costs is important to ensure your campaign performs well.

Beware of Overscaled Budget

As your SaaS business grows and scales, it may seem intuitive to double your marketing budget in hopes of doubling your conversions. However, it’s important to note that doubling your budget doesn’t necessarily equate to doubling your conversions.

This principle holds particularly true if your target audience size is not large or the search volume for your solution is limited. In scenarios where there are only a thousand people seeking your solution, overscaling your budget may lead to diminishing returns rather than improved conversion rates.

It’s crucial to sync budget allocations with the size and nature of your audience and the demand for your solution. Overspending on marketing to a limited audience or in a market with low search volume can lead to inefficient use of resources. The key is finding a balance, ensuring your budget aligns with your market’s potential reach and demand.

Practice Audience Segmentation

Understanding your customer base deeply and segmenting it based on preferences and behaviors is critical in budget allocation for SaaS marketing. Each of your primary customer segments will require different strategies and channels to reach effectively and, hence, necessitate a different proportion of your budget.

To get started, you’d need to identify and segment your target audience based on their demographics, psychographics, online behavior, and preferences. Once you understand each segment better, you can allocate the budget accordingly to optimize for the highest potential returns.

It’s essential to know where your customers are, what they want, and how they prefer to communicate. A one-size-fits-all approach may not necessarily work for your business. For instance, if your target audience is predominantly active on Instagram, it would be futile to allocate a significant portion of your budget towards LinkedIn campaigns. Thus, understanding your audience’s diversity and preferences will enable you to make informed decisions when allocating your marketing budget.

Invest in Inbound Marketing Strategies

When it comes to inbound marketing, make sure to remember the three key areas:

Content development
Content promotion
Conversion rate optimization (CRO)

The more engaging and relevant your content, the more likely it is to generate leads. And with inbound leads producing 54% more leads than the traditional outbound practices, investing in quality content is a wise decision.

The idea behind inbound marketing relies on creating valuable educational resources that attract potential customers to your brand and educate them on your solution or industry. This approach can be incredibly cost-effective in the long run, as it generates leads and nurtures relationships with prospects through ongoing communication.

This strategy aligns well with the SaaS model, focusing on building long-term customer relationships rather than one-off sales.

Allocate a Portion of Your Budget to Customer Retention and Upselling Strategies

Of course, acquiring new customers is crucial to your business’s growth. But it is also equally important not to overlook the value of your existing ones.

It is common for SaaS companies to allocate most of their marketing budget to customer acquisition, leaving little to no budget for customer retention and upselling.

Moreover, it may cost you four to five times more expensive to get a new customer than it is to retain an existing one. So, why ignore the opportunity to upsell or cross-sell your existing customers, who already trust and use your solution?

Here are a few things to help you get started:

Timely and relevant email campaigns can keep your customers engaged and informed about your latest offerings, updates, or valuable content. You can allocate a part of your budget to employ an email marketing tool that allows for segmentation and personalization to increase customer engagement and satisfaction.
Offer upgrades, add-ons, or premium product versions to customers familiar with and trust your brand. This will help you increase the revenue from your existing customers and improve their overall experience with your brand.
Invest in CRM software to help manage and analyze customer interactions and data.

Regularly Monitor and Adjust the Budget

Suppose you’ve spent $10,000 on a particular marketing channel and generated $15,000 in revenue. In that case, you will likely be tempted to allocate more of your budget to that channel in the upcoming period.

However, it’s crucial to remember that marketing is never a one-time investment; you need to allocate and adjust your budget regularly based on performance, market trends, and your business’s growth stage.

The right approach is to test multiple channels and strategies and then allocate the budget to the most effective ones that produce a positive ROI.

The key takeaway is never to follow a fixed budget allocation plan blindly. Instead, continuously monitor and adjust your budget based on performance metrics to ensure maximum efficiency.

Conclusion

So, how much do SaaS companies spend on marketing?

By now you know there’s no one-size-fits-all answer.

But what we know for sure is that a haphazard approach to budget allocation will not yield the desired results. That’s why we believe in data-driven decision-making at Camel Digital.