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There are really no hard and fast rules because each business is different. When we work with clients to determine a budget, we look at a few factors that we utilize in the calculator below.
Start with your revenue as the foundation for determining your marketing budget. Obviously your size and whether you software focuses on MRR/ARR will impact how much you should invest in marketing.
What type of software do you sell?
Mid-length sales cycle, mid-level pricing and often monthly.
Longer sales cycles and higher cost solutions.
Software Channel Partners
Companies that resell and implement software.
Higher volume, lower cost software.
Mobile apps and other software for consumers.
What is your current marketing reach?
Are you trying to grow software users and accounts in a specific region, a country or internationally. Expanded key phrases, advertising budgets, website languages and much more will be impacted by your reach.
Are you currently focused in one market but looking to expand into new regions, states or countries?
In addition to your current reach, how much are you looking to break into new markets from a location basis?
How aggressive do you want to be?
Are you looking to attack the market hard to capture new market share at scale? Or are you looking to maintain the status quo to achieve measured growth?
How mature is the market that you are going after?
Your product / service is a first mover and requires a lot of education versus being in an established market where it is more about comparison of offerings.
One of the first points of discussion when talking about budgeting for SaaS is the LTV or Lifetime Value of a customer.
If customers average an 18 month subscription at $100 per month, then you are looking at an average LTV of $1,800. You want your user acquisition cost as well as operating costs to be well below this to maximize profit. Separate from marketing is your user retention and customer loyalty that can increase the LTV.
If you have a low LTV, obviously your budget for marketing will be very thin or cause you to be in the red. Many high-growth SaaS and technology companies will outspend their average LTV as a way to maximize user acquisition in early stages.
Check out our article and explanation of the difference between Marketing versus Strategic Marketing.
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