According to Deloitte’s Annual CMO survey, marketing costs will be roughly 13.6% of a company’s budget in 2023. A jump of 32% compared to last year.

There is an investment downturn all across the tech industry, and marketing is one of the most significant expenditures. In this landscape of limited resources and boundless potential, a well-considered marketing budget allocation plan is your North Star. This guide is here to navigate the complexities of determining the proper cash infusion into your marketing efforts and to ensure that every dollar is a strategic investment.

The road to success isn’t just about pouring funds into marketing channels; it’s about understanding your company’s growth stage and crafting a budget that aligns with your ambitions. Unfortunately, the web is flooded with generic SaaS marketing advice that overlooks the critical detail of your stage in the journey. This guide cuts through the noise and provides actionable insights tailored to early-stage SaaS enterprises’ unique challenges and opportunities.

So, let’s embark on this journey to discover the art of optimal marketing budget allocation for early-stage SaaS companies. From deciphering the cash-in-bank ratio to debunking the myths of one-size-fits-all strategies, we’re here to equip you with the knowledge you need to chart a course to growth and recognition in the SaaS arena.

How Much to Spend?

You can spend around 50% of your annual revenue. Even 100% if you are a well-funded Saas company and can bear the burn. Salesforce spends around 46% of its revenue on marketing, while the same number for Hubspot is around 50%. So, don’t cut costs initially when it comes to marketing. It can backfire really badly and allow your competitors to move faster. 

For a pre-revenue company, things change a bit. Since there’s no ARR, that number doesn’t make much sense. So, in that case, you might want to consider your cash-in-bank and ideally allocate only 30% – 40% of it annually until you raise or start generating significant cash flow.

Now let’s understand what channels you should allocate your marketing budget based on what stage your SaaS business is at.

Where to Spend?

You might be eager to dive headfirst into every marketing channel, but spreading your resources too thin can lead to diluted results. This is where determining the right proportion of your budget becomes paramount.

Earliest Early Stage

If your SaaS business is very new, i.e., you have just laid down the foundation but haven’t started to generate any cash flow; then it is ideally recommended you focus on a strategy that drives results fast. Two strategies at the top of my mind are Sales Development through email marketing or paid advertising on a relevant platform. You can focus on social media platforms where your audience is most active or run your search ads.

If you are a B2B SaaS, search ads are more likely to work for you, besides running ads on LinkedIn and listing platforms like G2 and Capterra. If you are B2C, Facebook, Pinterest, and search ads will probably drive the best results. You’d notice that I have mentioned search ads for both B2B and B2C – the reason, as always, is your audience. Doesn’t matter if your users are buying cargo pants or an investment management SaaS tool; they are very likely to Google it.

Conclusively, it is fair to say that if you are an early-early stage SaaS company, you should invest 80% of your marketing budget on:

• Paid Ads
• Outbound Marketing
• Organic Social Media

Again, these suggestions are subjective to every company but work exceptionally well as rules-of-thumb when starting. 

Matured Early Stage

However, if you are a SaaS company that is slightly mature, with a consistently growing cash flow for the last three to six months or more, continuing only to spend money on paid ads is not a sustainable strategy. You need to build more sustainable funnels with lower CAC. The best of one such channel is SEO. If you cannot build an SEO, don’t hesitate to consider hiring a SaaS SEO agency.

Growing your company’s or your founder’s social media presence is also a great way to build authentic relationships with potential customers. Many indie hackers are making a million-dollar selling Notion template on Twitter. Many built and sold their SaaS side projects for great offers on these platforms. The only recommendation would be to make sure that you funnel that audience into your email marketing lists. 

You can also consider growing your organic social media presence or building a Slack or Discord community around your niche. Community building and marketing is the new cool in 2023, and it works. But over the last couple of months, there has been a swarm of communities, and participants barely get the time to engage in them — building a community is getting more challenging day by day.

Another incredible source of revenue for many SaaS companies is partnerships. You can use tools like FirstPromoter to create your affiliate programs and share them with people who happen to have a network relevant to your niche.

Reverse Engineering MRR Targets

To understand how much money you should spend and on what channels, you must first be very clear about your targets. More specifically, your revenue targets. If you don’t know how much crop you want to reap, you can never decide how many seeds you should buy.

For example, if your SaaS company wants to add $10,000 in revenue in a month and your subscription fee is $1000, you need to sign up an additional 10 users in that month. Now the next question our team of experts will ask you is the percentage of converting demos. According to SubscriptionFlow, it’s usually in the range of 15-20%. Now, of course, you might be a PLG SaaS and might not be relying heavily on demos, but for simplicity, let’s assume you do. We will discuss about PLG companies later in this blog. 

So at a 20% closure rate, you must conduct 50 demos in that particular month and onwards. The next logical question in the chain is, “What percentage of your website visitors book a demo?” For most companies, it’s a tiny percentage – close to 1% – anything above that is considered exceptional. So now, for 50 demos, you need 5000 people to visit your website. Throughout this blog, please remember that these numbers are just estimations and might change based on many factors that are impossible to consider here.

After doing all the above calculations, your ultimate goal is to figure out how you want to drive that amount of traffic to your website. It can be through LinkedIn, for which the CPC is usually very high compared to other social media platforms – around $5.39, according to getuplead.

In that case, LinkedIn will cost you around $27,000. At first, spending $27,000 to make $10,000 might sound counter-intuitive, but this is where the beauty of SaaS lies. The $10,000 revenue you add is recurring, i.e., you will get it every month, at least most of it, because the average lifetime of a customer is about 12 months for B2C and 24 months for B2B. After spending $27,000, you are closing customers worth $120,000 annually, given that you have a good product with a great offering at the right price point.

Conclusion

And there you have it – the roadmap to steer your early-stage SaaS business through the marketing budget jungle. We’ve delved into the nitty-gritty of where and how much to allocate debunked myths, and lit the way with tailored strategies. The key takeaway? It’s not just about throwing money into the ring but about placing your bets smartly and aligning resources with growth goals. So, armed with these insights, conquer the SaaS realm with a budget plan that’s as unique as your journey.