A SaaS marketing budget is a schedule of expenses your business plans to spend on marketing-related activities. Typical marketing expenses for web-hosted products/services include social media marketing, PPC (pay-per-click) advertising, affiliate outreach, SEO, labor, and marketing automation tools, including lead capture and analytics.

Most businesses generate budgets on an annual basis. However, some agile software businesses may need to create budgets quarterly.

Why Do You Need a B2B SaaS Marketing Budget?

A SaaS marketing budget is used to plan marketing activities. It underpins your SaaS marketing plan. Companies generally create an annual budget, which is reviewed and adapted based on the Return On Investment (ROI) from your marketing activities.

Marketing ROI measures the returns from a campaign. Most marketing departments track returns and then increase or decrease spending based on the results. For example, you’d naturally increase spending on paid ads if monthly revenue from this channel was increasing. This helps you hit your revenue goals.

How Much Do SaaS Companies Spend on Marketing?

SaaS businesses allocate an average of 7%-15% of their annual budget to marketing activities. Some companies spend more, and others less. The figure varies depending on the growth plan and accounting methods used to track spending. That can make comparing SaaS marketing budgets difficult.

The chart below provides a nice overview of the average budget breakdown of equity-backed and bootstrapped B2B companies as a percentage of ARR (annual recurring revenue).

You can see sales and marketing activities account for 17% of the budget for bootstrapped businesses and 30% of the expenses for equity-backed companies. Of that combined total, the marketing budget accounts for 7% of bootstrapped businesses and 10% of equity-backed companies.

That’s the median SaaS marketing budget allocation.

High-growth B2B SaaS and B2C companies spend a higher portion of their overall budget than low-growth companies. The graph below nicely illustrates the difference.

Bootstrapped companies that have above-median growth increase the budget allocation to sales rather than marketing activities. Equity-backed companies allocate 15% of their budget to marketing activities. That’s a 5% jump or a 50% increase over the average.

You can check out this article on SaaS Capital, where the data was gathered, for additional insights.

The figures SaaS Capital gathered are broadly in line with other industry data. A survey by Content Marketing Institute published in 2017 found B2B businesses spend an average of 26% of their revenue on sales and marketing, with poor performers spending 14% and the top-performing companies spending 40%. 

How Much Do SaaS Companies Spend on SEO?

Forget about the overall marketing budget; how much do SaaS companies spend on SEO? Well, companies like Monday.com and RingCentral spend between $50K and $150k per month on SEO campaigns.

That may sound like a lot, but it makes sense since SEO is a profitable, albeit long-term, marketing technique that can reduce customer acquisition costs over time. At least, this is our experience as a SaaS SEO agency.

With that out of the way, here are financial statistics of some SaaS companies that will nicely illustrate what percentage of revenue goes to marketing. These examples should provide a nice SaaS marketing budget benchmark, especially for high-growth software companies.

How Much Salesforce Spends on Marketing

Salesforce is a software company we’re all familiar with. They offer customer relationship management (CRM) solutions for sales, customer service, marketing, and IT teams. Below is their 2023 operations report.

Source

Salesforce generated $31.35 billion in revenue and spent a little over $13.5 billion (43%) on marketing and sales-related activities. They’ve combined the SaaS sales and marketing activities here as one line item.

Still pretty crazy, right? 

The expenses included salaries, commissions, stocked-based compensation, payment to partners, and marketing campaigns. 

How Much Hubspot Spends on Marketing

HubSpot is a B2B SaaS that needs no introduction. Here’s a peek at their operating costs from the 2023 Annual Report.

Source

HubSpot’s total revenue in 2023 was about $2.17 billion. They spent 49.2% of that revenue on marketing and sales-related activities (1.068 billion). These included salaries, commissions, stock-based compensation, overhead costs, and marketing programs like their annual inbound conference, one of the most popular SaaS Conferences out there.

How Much Atlassian Spends on Marketing

Atlassian is a project management solution for software development teams. Below is a snapshot of their 2023 operations reports.

Source

Atlassian generated $3.53 billion, spending about $770 million – 21.8% of revenue – on the marketing and sales. Atlassian is not exactly allocating the equivalent of a high-growth SaaS brand on their marketing budget, but they’re still spending a considerable amount.

How to Determine Your Available Budget

As previously mentioned, SaaS companies spend between 7%-15% on marketing activities. Most SaaS companies use one of two strategies to determine how much they can spend; the goals-driven method and the revenue-based approach.

Let’s look at two common ways of determining how much you can spend on marketing activities.

1. Revenue Based Budgeting

With revenue-based budgeting, you assign a percentage of revenue to marketing activities.

There are two revenue-based methods you can use. On the one hand, you can budget by Annual Recurring Revenue (ARR). This is the total revenue generated from active subscriptions in a given year. Based on active subscriptions, you can predict future earnings.

To calculate ARR, you first need to calculate your Monthly Recurring Revenue (MRR). Simply multiply the number of monthly subscribers by the average revenue per user (ARPU). For example, if you have 150 users on a $ 75-per-month plan, the monthly revenue is $11,250.

Multiply MRR by 12 to get your ARR. So, $11,250 x12 = $135,000 ARR. Then, set a percentage for your budget. For example, 15% of $135,000 is $20,250.

Alternatively, you might budget your marketing spend based on gross income. For example, imagine your total income is $1 million. If you wanted to set aside 35% of annual revenue on marketing, the budget would be $350,000.

The advantage of budgeting by revenue percentage is you won’t get into debt (pretty important if you’re not taking on money from venture capitalists). You set a realistic budget based on the performance of your company. It helps you to achieve sustainable growth.

Tracking your numbers is critical with this approach. Monitor metrics like LTV (customer lifetime value) to CAC ratio(customer acquisition cost). This metric gives insight into how much money to spend to acquire one customer. The golden ratio is 3:1. You should net $3 for every marketing dollar.

2. Goals Based Budgeting

Goals-based budgeting is where you set your marketing budget based on growth goals. Traditional businesses with VC funding take this approach. It’s a great way to grow company size and quickly scale your market share.

Monday.com is a great example of a company that rapidly scaled through the different phases of growth by utilizing a goals-based marketing approach.

In a sense, the goals-based approach is the reverse of the revenue-based one. You start by setting out what you want to achieve, you then outline the marketing tactics and make assumptions about the unit costs you need to achieve to hit your revenue goals.

In 2013, Tomasz Tunguz, a venture capitalist, conducted an interesting study looking at successful companies that utilized this approach to budgeting. He analyzed 34 publicly traded companies to try to understand marketing spending at different stages of growth.

The graphic below summarizes his findings.

You can see in the first three years of growth the companies he reviewed spent between 80-120% of revenue on sales and marketing activities. This level of funding helped companies succeed during the aggressive growth phase so they could dominate competitive markets.

Over time budget allocation for the sales team and marketing team reduce to those industry benchmarks I mentioned earlier. This is an effective business model, assuming you can hit those ambitious growth targets. The danger is you fail to hit revenue goals, which will cause issues when you go public or go through a funding round.

Framework for Making a SaaS Marketing Budget

Once you know how much money you can spend, it’s time to look at how much you should spend. This is critical as departments have a habit of spending as much money as they are allocated. There’s a straightforward six-step process you should follow to determine your optimal marketing budget.

Here’s an exercise your team should go through to determine your marketing budget:

Setting a realistic marketing budget should be straightforward. The critical thing is ensuring you’re generating a return on your expenses, which is why tracking your budget is critical.

Where Does SEO Fit Into Your Budget

SEO is a critical marketing channel for B2C and B2B SaaS companies. A lot of the lead generation and conversion in SaaS marketing comes down to explaining the features, benefits, and overall value of the software. You can’t do that effectively in a billboard ad or other traditional marketing channels. That’s why many SaaS marketers turn to content or inbound marketing.

Inbound marketing is the creation of customized content for your target market, pulling them into your marketing funnel or flywheel. It includes blog posts, videos, infographics, eBooks, webinars, and more. The goal is to educate leads on how your solution solves their problems and saves them money.

Creating unique and relevant content helps improve your online presence (which is vital for web-based companies). In fact, content marketing is one of the items that differentiate SaaS Marketing from other types of marketing.

With an SEO-driven content marketing strategy, you can improve your ranking on the search engine results page, drive more traffic to your website, and, hopefully, increase sales.

Through our SaaS link-building services, we’ve helped fast-growing SaaS companies like Aura turn web traffic into the primary customer acquisition channel. We also provide full-service SaaS SEO services where we help develop your SEO strategy, conduct audits and competitor analysis, secure backlinks, and write your SaaS content. For example, we helped Right Inbox scale to 500,000+ monthly visitors with this approach.

Innovation & Future SaaS Marketing Budget Trends

Marketing budgets will change fast over the coming years. Here are some marketing trends you need to pay attention to that will impact the way you create a marketing budget and the amount of money you set aside for line items:

1. AI Content Generation

2. AI-Driven Chatbots & Virtual Assistants:

3. Adaptive Content & User Experience:

4. Enhanced Customer Insights:

5. Predictive Analytics for Lead Scoring:

6. Optimized Marketing Spend:

SaaS Marketing Budget FAQ

How Much Does the Average SaaS Company Spend on Marketing?

SaaS businesses allocate an average of 7%-15% of their annual budget to marketing activities. Bootstrapped companies tend to spend less, averaging 7%-11%, while equity-backed companies spend an average of 10%-15%.

What is a Typical SaaS Marketing Budget?

It’s difficult to assess a typical marketing budget because many companies combine sales and marketing activities as a single line item within the annual budget. SaaS companies allocate between 17%-39% on sales and marketing activities. In some cases, it can be closer to 50%.

In Closing: How Much Should a Company Allocate for SaaS Marketing Spend?

SaaS companies spend an average of 7%- 15% of their annual budget on marketing activities, which aligns with the 10% rule of marketing budgets. If you combine Sales and marketing activities, you should allocate approximately 30% of your ARR to these activities.

In general, the more you spend on sales and marketing, the higher returns and faster revenue growth.

However, throwing cash indiscriminately at marketing programs doesn’t translate to more sales. You need to be strategic about where you’re investing funds. That’s why you need a SaaS marketing budget.

This article covered the benefits of developing a budget for your software brand and two ways to calculate it. We shared examples of sales and marketing costs of companies like Salesforce and HubSpot and the activities they spend on.

With the right metrics and key benchmarks, investing in marketing channels that produce excellent results can drive growth rates.

And in case you need a hand with your marketing campaigns, get in touch with our specialized marketing agency for SaaS companies. Our experts can help you with content marketing, link-building, and SEO.

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