4 Tips for Formulating Your SaaS Inbound Marketing Budget

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? A well-structured B2B SaaS marketing budget is essential for allocating funds effectively for various marketing activities such as market research and lead generation.

1. Understanding the Importance of a SaaS Marketing Budget

A SaaS marketing budget is a crucial component of a company’s overall marketing strategy. It outlines the financial resources allocated to marketing efforts, ensuring that the company’s marketing goals are achieved. A well-planned SaaS marketing budget helps companies prioritize their marketing spend, optimize their marketing channels, and measure the effectiveness of their marketing efforts.

Having a SaaS marketing budget in place allows companies to:

• Allocate resources effectively: By setting a budget, companies can allocate resources to the most effective marketing channels and strategies.
• Prioritize marketing efforts: A budget helps companies focus on the most critical initiatives that drive revenue and growth.
• Measure ROI: A SaaS marketing budget enables companies to track the return on investment (ROI) of their marketing efforts, making data-driven decisions to optimize their marketing strategy.
• Scale marketing efforts: As companies grow, a SaaS marketing budget helps them scale their marketing efforts, ensuring that they can reach new customers and expand their market share. 

In summary, a SaaS marketing budget is essential for companies to achieve their marketing goals, optimize their marketing channels, and measure the effectiveness of their marketing efforts.

Sell inbound marketing as a long-term investment

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. Emphasize the importance of well-planned marketing campaigns in driving customer acquisition and achieving growth objectives.

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.

Having a SaaS marketing budget in place allows companies to:

• Plan and execute marketing strategies effectively.
• Allocate resources to the most impactful channels.
• Manage SaaS marketing spend to maximize ROI and foster growth without wasteful expenditures. 

3. Revenue-Based Budgeting

Revenue-based budgeting is a common approach used by SaaS companies to determine their marketing budget. This method involves allocating a percentage of the company’s revenue to marketing efforts. The percentage allocated to marketing can vary depending on the company’s growth stage, industry, and marketing goals.

Here are some general guidelines for revenue-based budgeting:

• For early-stage SaaS companies, it’s common to allocate 10-20% of revenue to marketing.
• For growth-stage SaaS companies, the allocation can range from 5-15% of revenue.
• For established SaaS companies, the allocation can be lower, around 2-5% of revenue. 

Revenue-based budgeting has its advantages, including:

• Aligns marketing spend with revenue growth: By allocating a percentage of revenue to marketing, companies can ensure that their marketing spend is aligned with their revenue growth.
• Encourages cost control: Revenue-based budgeting encourages companies to control their marketing costs, ensuring that they are not overspending on marketing efforts.
• Simplifies budgeting: Revenue-based budgeting simplifies the budgeting process, as companies can easily calculate their marketing budget based on their revenue.

However, revenue-based budgeting also has its limitations, including:

• May not account for changing market conditions: Revenue-based budgeting may not account for changing market conditions, such as increased competition or changes in customer behavior.
• May not prioritize marketing efforts: Revenue-based budgeting may not prioritize marketing efforts, as companies may allocate a fixed percentage of revenue to marketing without considering the effectiveness of their marketing efforts. 

Check industry budget benchmarks

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 businesses, 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. Here are some general guidelines for revenue-based budgeting:

• Allocate a percentage of your revenue-growth goal to sales and marketing.
• SaaS companies spend between 7% to 15% of their annual budget on marketing, with high-growth companies potentially increasing this to up to 25%.
• Adjust your budget based on your specific growth targets and market conditions. 

3. Allocate funds to align with your growth needs

You’ve figured out the total inbound budget you’ll need for your SaaS marketing strategy. 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:

• Strategy and project management. For inbound efforts to be successful, they must be driven by a thoughtful strategy, and hashing out that strategy requires funding. This will pay for the work of creating buyer personas and a buyer journey, determining which channels your demand generation activities will focus on, and planning for lead management and measurement.
• Marketing technology. Invest in software infrastructure at a level that fits your business so you’re ready to handle things like marketing automation, Web content management, lead management and analytics.
• Content creation. Content marketing is one of the key pillars of inbound marketing. You’ll need to invest in defining your content strategy and creating assets for each phase of your buyer journey, including blog posts, eBooks, webinars, case studies, videos or other types of assets that appeal to your audience.
• Content distribution. Organic traffic to your amazing content won’t be enough—these days, inbound marketing is a pay-to-play space. The best way to get your content out into the world is through paid distribution or what we call doing outbound the inbound way. The best paid channels for your business will depend on where your audience likes to spend their time online, but some popular options include Facebook, LinkedIn and Google Adwords.
• Staff. You’ll need to hire or outsource to some talented inbound marketers to tackle the items above. New roles could include project manager, brand journalist, marketing technologist, graphic designer, Web developer, demand generation manager and social media specialist. 

6. Calculating Key Metrics for SaaS Companies

Calculating key metrics is essential for SaaS companies to measure the effectiveness of their marketing efforts and make data-driven decisions. Here are some key metrics that SaaS companies should calculate:

• Customer Lifetime Value (CLV): CLV is the total value of a customer over their lifetime. It’s calculated by multiplying the average revenue per user (ARPU) by the customer lifetime.
• Customer Acquisition Cost (CAC): CAC is the cost of acquiring a new customer. It’s calculated by dividing the total marketing and sales expenses by the number of new customers acquired.
• Marketing ROI: Marketing ROI is the return on investment of marketing efforts. It’s calculated by dividing the revenue generated by marketing efforts by the marketing spend.
• Customer Retention Rate: Customer retention rate is the percentage of customers retained over a given period. It’s calculated by dividing the number of customers retained by the total number of customers. 

These metrics are essential for SaaS companies to measure the effectiveness of their marketing efforts and make data-driven decisions. By calculating these metrics, companies can:

• Optimize their marketing spend: By calculating CLV and CAC, companies can optimize their marketing spend, ensuring that they are allocating resources to the most effective marketing channels.
• Improve customer retention: By calculating customer retention rate, companies can identify areas for improvement and develop strategies to retain customers.
• Measure marketing ROI: By calculating marketing ROI, companies can measure the effectiveness of their marketing efforts and make data-driven decisions to optimize their marketing strategy. 

4. Measure, adjust, repeat

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.