One of the most common mistakes new SaaS companies make is “following conventional marketing models without original thought.”
Conventional outbound marketing tactics are product-focused and target prospects at the bottom of the funnel when they’re ready to make a purchase decision. But in the beginning, most SaaS companies need to focus on getting their name out and growing their trial user base fast and furiously. Traditional outbound tactics can rapidly drain an SaaS company’s funding when cash flow is negative, and they won’t necessarily resonate with prospects who have never heard of your service.
Inbound marketing offers SaaS companies the opportunity to accelerate rapid growth more cost-efficiently. The beauty of inbound is that it’s about attracting customers to you by providing valuable information, engaging with customers and prospects, and creating delightful user experiences. But inbound is more than just a social media campaign or a smattering of blog posts; it’s a long game that requires strategic investment to be effective.
With the unique SaaS business model comes a unique set of concerns when creating an inbound marketing budget. So how can your SaaS company create an effective inbound budget, get executive buy-in and demonstrate the ROI of inbound activities?
To get the initial buy-in and continued investment that you need for your inbound strategy to be successful, first make sure internal stakeholders know what they’re signing up for. Educate them about the nature of inbound marketing as an ongoing, long-term strategy—not a one-off campaign.
Don’t pitch inbound as a cost-cutting method. Even though studies show inbound marketing generates leads at 60 percent lower cost than outbound, the goal isn’t to dramatically slash your total marketing budget. The goal is to achieve a lower customer acquisition cost (CAC) over time than you could if you stuck to lower-funnel outbound tactics. This is especially important for SaaS companies, which typically see a cash-flow trough or negative revenue in their early stages. Setting this expectation with stakeholders will help you later when you’re tasked with proving the ROI of your inbound efforts.
The amount you can budget for inbound will depend on a variety of factors such as your initial funding, revenue and the growth stage of your business. Keep in mind, though, that traditional formulas for calculating sales and marketing budgets don’t really apply to SaaS companies, which typically need to spend more early on to achieve the growth in brand awareness and adoption that will ultimately make them profitable, as Scott Kupor and Preethi Kasireddy point out. “This is why many SaaS companies today invest aggressively in sales and marketing when adoption is high, even though it puts pressure on current profitability,” they say.
SaaS sales and marketing budgets are extremely wide-ranging, with companies investing anywhere from 10 percent to 80 percent of annual recurring revenue (ARR). SaaScribe recommends calculating total sales and marketing budget as 40 percent of your revenue-growth goal, based on a benchmark from Jason Lemkin. Under that formula, a young SaaS company with ARR of $2 million that wants to reach $3 million would need to budget for a sales and marketing investment of $400,000, or 40 percent of the $1 million desired revenue growth delta.
SaaScribe’s is just one approach to calculating an SaaS marketing budget. Benchmark your investment against public SaaS companies in your industry to determine the budget needed to reach your growth goals and become sustainably profitable.
You’ve figured out the total inbound budget you’ll need. Now how should you allocate it to achieve the greatest impact? The current stage of your SaaS business—early, rapid growth or mature growth—will largely determine how you divvy up your budget.
A younger SaaS company needs to focus on brand awareness and demand generation, so it might allocate more to creating a killer website and doing some pay-per-click (PPC) advertising. Once you’ve emerged from the initial cash-flow trough, you can shift some funds to content marketing activities like blogging, and work on building brand advocacy by engaging with users on social media. When your company is established, you’ll want to build sustained growth and market leadership in your industry by dominating search rankings and gaining clout as a thought leader across the social Web.
Plan for the following needs when deciding how to allocate your inbound budget:
To ensure continued funding for your inbound budget, you need to be able to show stakeholders the value you’re creating. Identify your KPIs and track them at least monthly. Keep a constant pulse on which inbound tactics are paying off the most for your business. Tweak your strategy to home in on these successful activities and pull back from those that aren’t working.
An early-stage SaaS company should focus on the number of qualified leads its inbound investment is generating and the engagement rates of users and prospects on its website and social properties. In the rapid-growth phase you can start to measure the impact of inbound activities on increasing monthly recurring revenues (MRR) and customer lifetime value (LTV), and reducing customer acquisition cost (CAC) and churn. A mature SaaS company can report on all of these metrics along with the traditional measures of profit, growth, market share and cash flow.
Tracking the most important metrics at your stage of SaaS growth will let you nimbly change course as needed and justify upcoming budget needs—not to mention earn you kudos for the results your inbound activities are driving.