What fraction of total SaaS revenue is typically spent on marketing?
How much of your SaaS revenue should you spend on marketing? That’s a question I recently read on Reddit, so I thought I would provide a detailed answer. Since sales and marketing are closely related, I’m going to use sales and marketing data sets here.
1. Typical Industry benchmarks: Percentage of SaaS revenue spent on marketing
In terms of industry benchmarks, a 2016 SaaS survey found that the median is 35% of revenue spent on sales and marketing. The research found that revenue growth was correlated with higher spend on sales and marketing. In this case, it was not an even split between sales and marketing – the sales spend was more than 50% in this survey.
2. The fraction of SaaS Revenue Spent on Marketing: Data From Public SaaS Companies
Now let’s take a look at companies which have recently gone public. Once again, sales and marketing figures are reported in a single value by convention.
- Cloudflare: 49-56% of revenue spent on sales on marketing
For the year ended Dec 31, 2018, Cloudflare spent 49% of revenue on sales and marketing. For the three months ending Dec 31, 2019, the ratio was 56%. It is important to note that Cloudfare is currently operating in a net loss. Find out more from the company’s SEC filings.
- Slack: 59%-67% of revenue spent on sales and marketing
For the nine months ended Oct 2019, Slack spent 67% of revenue on sales and marketing. In contrast, for the nine months ended Oct 2018, the ratio was 59%. Read more information on the company’s filings.
- CrowdStrike: 55% of revenue spent on sales and marketing
For the three months ended Oct 31, 2019, CrowdStrike spent 55% of its total revenue on sales and marketing. Note that 8.7% of the company’s total revenue for that period was professional services. Link to the filings.
Data from established SaaS companies:
If you are operating at a later stage of the SaaS company lifecycle, comparing yourself to larger companies makes sense.
- Salesforce.com: 45%-46% of total revenue spent on sales and marketing
For the nine months ending on Oct 31, 2019, the company spent 46% of total revenue on sales and marketing. For the same period in 2018, the ratio was 45%. Find out more by reading the company’s public filings.
- ServiceNow: 47%-50% of total revenue spent on sales and marketing.
For the nine months ending on Sept 30, 2019, the company spent 47% of its total revenue on sales and marketing. For the same period in 2018, the ratio was 50%.
- Shopify: 30-33% of total revenue spent on sales and marketing.
Shopify, the giant in e-commerce software, stands out compared to the other technology companies profiled here. The company is spending only about one-third of revenue on sales and marketing. In the year ended 2019 and 2018, the company had a loss. For more details, take a look at the Q4 2019 press release.
The Next 2 SaaS Marketing Questions You Need To Ask
Based on this brief industry survey, the typical range spend on marketing is approximately 15%-25% of revenue on marketing. That amount is estimated based on the 2016 survey. If you are spending less than 15-25% of total revenue on marketing, you are at a disadvantage relative to most SaaS companies.
Merely throwing money at your sales and marketing departments will not generate results. You need to consider a few other factors as well.
1) How Competitive Is Your Market?
Some markets are more expensive to market in than others. For example, marketing software for significant banks is going to be costly! To estimate marketing costs in your industry, take a look at Google Ads benchmark data. However, cost and competitiveness are just one side of the marketing coin.
2) What Is Your Customer Lifetime Value?
If a new customer is worth $5,000 over a year, how much can you afford to spend to acquire them? The answer will depend on your ability to upsell in part. As a rule of thumb, you can probably comfortably spend $500 to $2500 to acquire that customer.
How To Get Help With Your SaaS Marketing
Improving your SaaS marketing results takes time, expertise, and a willingness to experiment. Your in house marketing team may be at capacity with their current projects. To gain a new perspective on your SaaS marketing, contact me today.