B2B SaaS Marketing Budget Planning & Allocation Guide

SaaS marketing budget planning and allocation is an important topic for SaaS companies for a number of reasons. It signals the current situation and trends in the industry or in the economy as a whole. Typically, marketing budgets shrink in a recession and increase during economic expansion. This is the same with SaaS PPC budgets.

“How much do SaaS companies spend on marketing?”

“What is the optimal B2B SaaS marketing budget?”

“Which marketing budgeting model is right for my SaaS company?”

These questions motivated us to come up with a comprehensive guide on SaaS marketing budget planning.

A lot of research was dedicated to polling data on how much SaaS companies spend on marketing and advertising. In this article, we will outline the major factors you need to consider when planning your SaaS company marketing budget.

We will focus on the specifics of marketing spend of SaaS companies, and we will review the most profitable marketing channels with their costs and payback period.

Watch the video as Liudmila explains B2B SaaS marketing budget breakdown and allocation.

Standard Marketing Budget Calculation as a % of Revenue

As a rule of thumb, the easiest calculation of the B2B SaaS marketing budget is in the percentage of revenue. The golden percentage is 10% as per Gartner research for a “standard” business.

How much do SaaS companies spend on marketing?

In the table below you can see the results of yearly surveys Gartner performed with 400 CMOs and marketing leaders in North America, the UK, France, and Germany. The last survey was conducted from March 2021 through May 2021. The table represents the combined results for all industries.

2021 Marketing Budget of % of Total Revenue

Source: Business Wire, Gartner

The table below represents the percentage of revenue allocated to marketing by industry in 2021 vs 2020.

Percentage of Revenue Allocated to Marketing by Industry, 2020 vs 2021,

Mean Percentage of Budget Shown

As seen from the table, IT and Tech product marketing spending was even lower than the average in 2021 with 5.9% for IT & Business Services and 5.0% for Tech products. Which is almost a 50% drop in comparison with 2020 spending. The budget cuts were attributed to the pandemic.

Gartner research shows that CMOs have shifted spending commitments across their channels and programs, with pure-play digital channels – owned, paid, and earned – dominating those priorities and accounting for 72.2% of the total marketing budget.

2020 and 2021 have seen drastic changes to customer buying journeys – both B2C and B2B alike, forcing even digital latecomers to accept the inevitable shift to online channels.

When looking at B2B SaaS marketing budget allocation by programs and operational areas, CMOs report digital commerce makes up 12.3% of the total budget. Likewise, marketing operations and brand strategy make up 11.9% and 11.3% of the total budget.

But what happens to the numbers with we isolate SaaS businesses? According to a SaaS Capital survey, SaaS firms with above-median growth spend, on average, 14% of their revenue on marketing.

However, especially in the early phases of growth, SaaS providers will spend far more than this (and may even outspend their revenue on marketing) in order to establish their brand and product in the market.

B2B SaaS budget planning based on OPEX

As a rule of thumb, 40% of operating expenses (OPEX) in SaaS should be allocated to Sales and Marketing. But rules of thumbs are just generalizations, so Blossom Street Ventures analyzed the expenses of 73 SaaS companies that have gone public since 2017, and their margins are represented below:

According to the real data, perhaps the rule of thumb should be 50% of OPEX spent on Sales and Marketing.

From this research, we can see that only 20 out of the 73 companies had positive operating income at IPO, which means that for most of the SaaS businesses OPEX is higher than revenue and they are heavily investing in growth. How do they profit long term? The answer to this question is recurring revenue that doesn’t churn.

Why is such high spending possible? Or, more importantly, why is such a high marketing budget necessary?

1. B2B SaaS firms experience high customer acquisition costs (CAC).
2. The Cost of Goods Sold (COGS) is generally low for SaaS firms.

For one, the customer acquisition cost (CAC) is typically much higher for SaaS businesses. This is because they rely on a relatively low number of customers to generate a large amount of revenue, so they’d need to invest in scalable systems to sustain growth.

In order to make up for the high CAC, SaaS businesses often spend more on marketing than other types of businesses.

Secondly, once you’ve developed your SaaS product, your unit costs plummet. While traditional businesses have Cost of Goods Sold (COGS) of 80% – having to pay for brick-and-mortar stores, wholesale goods, transport, logistics, etc, SaaS businesses don’t.

Sure, there are maintenance, admin, and support costs. But primarily, you have an almost unlimited inventory – so now you need a proper budget to market and sell your product! SaaS entry barriers are lower than for most industries, therefore marketing spending is a key tool for establishing a sustainable market share.

Thus, for SaaS companies, the budget planning by revenue percentage or based on OPEX is not truly adequate. SaaS firms are too agile and lean with respect to costs to benefit from methods that set quite strict spending limits.

Budget by LTV-to-CAC: Implementing the Golden Ratio (LTV-CAC)

One of the most common principles for SaaS marketing budget planning is to look at the LTV-to-CAC ratio. This ratio shows how much your SaaS company is earning from every customer, and it also illustrates if your company can afford to scale its marketing spending. Here’s how to read the most common ratio figures:

See our Ultimate Guide to SaaS Metrics That Matter for more details on how to calculate your LTV and CAC.

SaaS Marketing Budget Allocation Example

When planning your B2B SaaS marketing budget, you should allocate funds for market research, lead generation, and customer retention programs.

These broader categories can include the following budget sub-categories:

• People
• Demand generation and lead gen
• Content marketing
• Software and Tools
• Product marketing
• PR & brand awareness
• Events

Let’s review this list in detail.

High-level SaaS Marketing Budget Categories

First, it is important to allocate funds for market research. This will help you to identify your target audience and understand their needs and pain points. 

Second, you will need to invest in lead-generation activities such as paid advertising, content marketing, and email marketing. These efforts will help you to attract potential customers to your SaaS company. 

Finally, you should set aside money for customer retention initiatives such as discounts and loyalty programs. By investing in all of these areas, you can ensure that your SaaS company has a well-rounded marketing budget that will help it to reach its goals. This section breaks down what to include in your SaaS marketing budget.

2021 and 2022 were quite turbulent years for many businesses, SaaS companies not being an exception. Let’s review the most common SaaS marketing budget line items and consider what needs to be added to your planned spending in 2023. 

Must-haves SaaS Budget Categories and Target Allocation %

Additional Spending Categories

Depending on your growth stage, the following extra categories can be added:

* These target percentages represent ballpark estimates. Depending on your SaaS company’s growth stage and overall profitability, more budget can be allocated to demand and lead gen bucket, as well as to PR and brand awareness.

Companies at early stages tend to invest more into their in-house marketing teams, and their spending on Events and Product marketing can be lower compared to more mature companies.

Planning your SaaS Budget Reserves

It is also a good practice to reserve 1-2% of your annual marketing budget for one-off (ad hoc) expenses for sponsoring an event, a conference, or any industry research that may be coming up later in the year. 

Another 1-3% can be reserved for new marketing channels testing and experiments with new tools and types of advertising, as most of the ad platforms add 1-2 new types of campaigns and techniques every year.

This reserve can help you test these features earlier than your competition and make a timely decision about adding them to your main marketing mix.

What are the SaaS Marketing Channels with the Highest ROI?

SEO, thought leadership, content marketing, and paid ads are consistently reported as channels with the highest ROI for SaaS marketing.

As any SaaS marketer knows, generating leads can be a challenge. With so many options available, it can be difficult to know which channels will provide the best return on investment.

However, there are a few SaaS marketing channels that have consistently proven to be effective. Search engine optimization is one of the most powerful lead-generation tools available, and it requires relatively little investment. 

Paid advertising can also be an effective lead-generation tool, although it requires a higher level of investment. These channels have proven to be highly effective in generating leads for SaaS companies, and they should be at the top of any marketer’s list.

The following table outlines the various SaaS marketing channels that tend to yield positive ROI for B2B SaaS companies:

A typical decision-making principle will be to look at the LTV-to-CAC ratio for every channel that you have in your marketing mix. To do that, you will need a CRM with detailed web marketing statistics integrated into it, and a regular reporting system in place for your organization.

Check out this SaaS CRM guide for more information about which CRM system to pick and how to implement it properly. 

How to Calculate Lead Gen and Demand Gen Spend for a SaaS Company

Plan your SaaS PPC Budget

Paid ads platforms have a variety of tools that can help with SaaS PPC budget planning. Planners can be used for checking cost per click and other parameters, but also for budget forecasts.

These tools allow you to forecast the number of impressions and clicks as well as CTR, CPC, and monthly budget based on the keywords and the daily budget or maximum bid you specify.

If the campaigns for which you are trying to forecast the budget are new and there is no historical data in the account, then the budget estimation will be approximate. If there is historical data in the account, then the system analyzes it and provides a more accurate forecast.

For budget planning, you need to take impressions, clicks, CTR, and average CPC from Performance Planner. Additionally, you will need to calculate conversion metrics (conversion rate (CR), cost per conversion, and the number of conversions). Besides, you can enhance your budget plan with ROAS, transaction amount, and revenue based on your Google Analytics data.

We’ll use Google Ads as an example in our PPC budget planning exercise. Google Ads has a native tool called Performance Planner, which you use for planning, as the name suggests.

Performance Planner lets you create plans for your advertising spending and assess how changes to campaigns might affect key metrics and overall performance. Using Performance Planner, you can access forecasts for your campaigns and explore outcomes by adjusting campaign settings.

Here’s an example of what this calculation may look like:

SaaS PPC budgets

RELATED: How To Outsource SaaS Marketing Tasks On A Budget

How to Plan Outreach and ABM Campaigns Costs for B2B SaaS Campaigns

Another area where careful budgeting can become very important is your outbound campaigns: outreach and account-based marketing campaigns. 

Luckily, SaaS budget planning can be very straightforward. Let’s look at the 2 most common scenarios:

1. You plan to run these campaigns in-house.
2. You plan to outsource your SaaS outreach and ABM campaigns.

In the first case, you will need to factor in the following in your B2B SaaS budget planning:

1. Costs of sourcing your lists: direct expense for databases purchasing, or costs of tools you’d use to source and enrich the email lists data.
2. Cost of email sequence setup: the amount of time it will take your team to set up and update the emails’ sequence copywriting.
3. Campaign maintenance. Depending on the size of your list and amount of emails you plan to send out, you may wish to reserve at least 4-6 hrs of dedicated personnel per week to run the campaigns.
4. Software and tools, including reporting. Depending on your tech stack, you need to count on your direct costs for maintaining the outreach infrastructure.

In the second case, you may request the estimated amount of leads and monthly fees from your providers and see if the numbers that they give you fit into your desired LTV-to-CAC ratio. 

SaaS marketing budget: FAQs

Conclusion

SaaS marketing budget planning should consider multiple inputs:

• Maturity of the Solution/Company (Product-Market fit)
• Maturity of the Market Segment you expect your growth to come from
• Completeness of marketing foundation (these are one-time investments like branding, website, and marketing infrastructure)
• Available growth capital and speed expectations (desired time to capture a certain amount of market share)
• Growth volume expectations (% in ARR growth)

The required marketing budget varies based on the growth stage, based on SaaS company time (public or private), based on market maturity and availability of competitors, marketing channels you would like to employ, the required length of commitment, and multiple other factors.

The standard rule of thumb calculation of marketing budget for “normal” companies is 10% of revenue, however, for SaaS companies, a more applicable calculation is by the golden ratio of LTV and CAC. The so-called ‘golden ratio’ states that your LTV-CAC ratio should be 3:1. That is, there should be a 3X ROI for customer acquisition.

Planning your marketing budget can be a very tedious exercise, so you might want to refer to consultants to seek external experts who will assist with determining your market and other factors which are important for the calculation.

Contact us to see how we can help you with your SaaS marketing budget planning for 2023.