Creating a successful SaaS company involves alot of trial and error, even if your product is amazing. Without an innovative marketing team and a dedicated sales staff, customers aren’t going to know how great your solution is. However, for strapped-for-cash SaaS companies, especially those just starting out, it can be really difficult to know how much of the budget should be allocated to sales, not to mention how much is leftover for marketing.
And unfortunately, there’s no black-and-white solution that fits all SaaS companies, but it does pay (literally) to know what the other guys are doing. Here’s a breakdown of what SaaS companies arespending on sales and marketing.
Are there standard SaaS sales and marketing spending benchmarks?
According to Gartner, sales and marketing budgets continued to climb in 2017 across all industries. The study found that larger companies spent around 13% of revenue on marketing, while smaller companies spent 10%, which is up from 2014 studies. But for SaaS companies, that number is generally much higher.
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So why do SaaS companies spend more on sales and marketing?
According to Agile Payments, SaaS companies have to spend more on sales and marketing because their business model varies so much from a traditional business model.
“SaaS companies are always under extreme pressure to grow recurring revenues,” writes Gene Krause for the Agile Payments blog. “The company’s goal is to pay itself back for the cost of acquisition, and before churn catches up. Therefore, their concern is always with growing quickly and paying off their initial overhead spend. Marketing has to be an important part of their business plan.”
The first year of sales and marketing is critical for any SaaS
And because of that pressure to grow rapidly, SaaS companies just starting out will probably find that they need to spend somewhere at the top end of that 20-50% number, with some experts even recommending that SaaS companies banking on fast growth spend up to 80-100% of annual contract value (ACV) on sales and marketing in the first year, with at least 25% going to sales reps.
If you are trying to run with capital efficiency, or are bootstrapped, those numbers are enough to make your heart race.
Here’s what the other guys are spending
If those numbers seem scary, perhaps it will help to know how much the big names in SaaS are spending. As of 2017, Salesforce was spending 49% of its revenue on sales and marketing, or around $3 billion. And, of course, the sales and marketing story of Tableau is nearly legendary at this point. In 2013, the small SaaS went public, quickly sinking 53% of their revenue into sales and marketing. The move doubled their revenue, growing it from $412.6 million in 2014 to $826.9 million in 2016.
But investing in sales and marketing means more than just throwing money at the problem. Many innovative solutions have been born out of a bootstrap budget. The important thing to remember is that you should be investing enough to build a strong team of knowledgeable salespeople and creating sales compensation plans that will help draw the right kind of customer. Beyond that, are you investing enough to differentiate your product? Are you seeing a return on your investment? If so, go forth and conquer; you’re probably doing something right.