How Much of Your Revenue Should You Spend on Digital Marketing?
Key takeaways:
- Our very own SaaS expert, Ashtan Moore, breaks down marketing spend as a percentage of revenue by industry.
- Your digital marketing budget depends on your goal(s) – Do you want more website traffic, qualified leads, sales, sign-ups, growth, or all of the above?
- Businesses should allocate 10-12% of their annual revenue to marketing if they’re looking for a slow and steady growth course.
- Many fast-growth companies invest as much as 30% of their annual revenue, especially when they’re funded by outside investors.
- A good rule of thumb is to calculate and forecast the marketing budget for the year ahead.
Figuring out what percentage of your revenue should be spent on marketing can feel like a shot in the dark. You might wade aimlessly through the multiple factors that come into play when planning a marketing budget. It’s even tougher if you have no marketing strategy in place or an idea of exactly what you want to achieve.
Well, kick that stress to the curb because we’re delving into how to plan a marketing budget with Ashtan Moore, a seasoned B2B SaaS marketing expert and co-founder of Model B, a performance advertising agency that helps growth-focused brands streamline and improve the results of their marketing operations. Let’s take a well-informed look at allocating a marketing budget, ad spend figures by industry, and smart tips to help you budget effectively.
The Marketing Budget Conundrum – It’s Not as Hard as You Think
CFOs, CMOs, and even CEOs sometimes grapple with the question, “How much should we spend on digital marketing this year?” 10, 20, 30%? They implore their marketing departs to put a finger on a specific figure.
A lot of B2B organizations spend countless hours researching cost estimates for paid media, organic content, web development, and graphic design. They usually come up with ballpark figures and a rough idea of what marketing tasks – organic and paid media - might cost, but nothing totally accurate.
One fast and easy way to understand how much to spend is to ask yourself how much you want to grow, and how much you’re depending on paid media to grow your organization. If you want to grow by 30%, you’re doing $10 M in annual revenue, and your organic growth is 10% year-over-year, you need to invest into getting that other 20% from an alternative source.
“Note: This is where you just skip to the “Book Meeting” button at the end of this article and call me because modeling these scenarios is basically my favorite thing.” – Ashtan. So, let’s continue.
What Are Other Industries Spending?
In Deloitte’s latest CMO Survey, marketing budgets as percentages of overall budgets have risen to 11.8%. Yearly marketing spending is projected to increase even more in the next decade. What’s the average marketing spend as a percentage of revenue by industry?
- Marketing costs are highest in the education sector at 19.4% of the total budget.
- The healthcare industry’s marketing budget is around 7% of the total budget.
- The energy sector spends just 4% of its total budget on marketing (“That doesn’t seem like enough” - Ashtan).
- Consulting services typically spend 13% on marketing.
- Technology/software services allocate 12% of their overall budget to marketing.
How much you spend also depends on what you’re going to use to market your product or service. Let’s look at how to allocate a marketing budget.
What Marketing Initiatives Are Going to Work for Me?
No one wants to spend aimlessly on campaigns that yield little ROI. You want to invest money in marketing campaigns that generate quality leads and increase your revenue.
More website traffic is a good thing, but is that the final result you want? Probably not.
Here’s what you’re likely to spend on:
A professional website:
$20,000-175,000. A corporate or e-commerce website will cost more than an informational website with a few pages.
Paid search:
Smaller companies typically spend a base of $9,000-$10,000 a month on paid advertising. The cost per click on the Google Ads network is roughly $2.32. Model B’s typical client is a little further along, so our average client’s spend per month is $100,000+.
Content marketing:
Freelance writers charge anywhere from 10 cents to a dollar per word. Expert writers charge more per word. Hiring a content marketing specialist to take care of content may cost upwards of $50,000 a year. Video and design could roll up the costs.
CRM and marketing automation:
Lead generation software costs vary and increase gradually as more contacts, users, and features are added.
You might also want to spread your budget across other lucrative areas like SEO, PR, and influencer marketing. Seeing what works for you is the key to your company’s success.
Looking Back to Go Forward - Forecasting You Budget for the Year
Hindsight is 20/20 and so is marketing data. You need real data insights on your campaigns to understand the relationship between marketing and spending and to plan accurately and make projections. Some companies use a competitive parity method to match up to their competitors’ spending.
This method is based on assumptions you know what assuming does... yea, I’ll leave it there. There are 0 guarantees you’ll get the same results based on what someone else did – it’s about investing in your company’s growth.
What Percentage of Revenue Should Be Spent on SaaS Marketing?
It depends. Most DTC/e-comm and B2B SaaS companies with $10 million-plus in recurring revenue will be seeking to accelerate growth.
“I recommend that 12-30% of your company’s overall revenue go toward marketing. So, if you’re a million-dollar company and you allocate 10% of your entire budget to marketing, that works out to $120k per million.
As for how much of that estimate should go into paid media, I say about half. 6% is a healthy percentage to go into the digital marketing spend.” – Ashtan.
What’s a Good Number of Leads to Be Getting in My Performance Marketing Campaign?
Getting one in ten leads isn’t bad for a typical marketing campaign. For a medium-sized company, that could mean a cost per lead of $250. How much you spend to acquire a lead depends on who ultimately approves the digital marketing ad spend.
Can I Make My Budget in One Day and Be Done With It?
That’s a bit of a stretch. Even SaaS marketing experts with years of experience take a few days to create and fine-tune budgets. It’s a delicate balancing act.
Allocate too little to your budget and you might jeopardize your marketing campaigns. Splurge and you may eat into your profit margins.
Tips for Making a Digital Marketing Budget for Your SaaS Brand
What you invest in is what you’ll reap. Investing in your company is like investing in yourself – you’re going to be a lot better off if you go to the gym regularly, eat healthy, participate in social activities, etc. than if you just sit on the couch waiting for something good to happen. Whether you’re a new brand looking to promote your first line of products, or an existing company looking to accelerate growth, the tips below will help you allocate your marketing budget properly.
Let the Data Drive
Don’t make business (or any) decisions based solely on assumptions and feelings. Consult historical or existing performance data. Media management allows you to gain visibility into the performance of your media investments.
Go Over Last Year’s Performance
What gains did your business make in terms of leads, conversion, and growth last year? Review the performance of your past marketing campaigns and see what activities generated more leads and grew your revenue.
Identify the Best Channels
Not all promotional channels work the same way from one industry to another. Ask yourself whether you need outreach or inbound marketing. Think about your target audience and demographics and whether you want to target them based on intent or behavior.
Drill Down to the Details
Next, analyze your sub-goals. List what you want to accomplish. For example:
Goal 1: Grow website traffic by 30% and increase Facebook followers by 50%.
Tasks: Post regular updates and videos, and launch follower campaigns to grow your audience.
Goal 2: Increase conversion rate
Tasks: Design a sales funnel, create new landing pages, and revamp your website.
Factor in Agency and Production Costs
An in-house advertising budget can't substitute your SaaS marketing budget. Various components make up a company's marketing budget: Marketing automation software, market research costs, agency fees, web design and hosting, freelancing costs, and more.
Hiring a video marketing professional in-house, for example, might seem like a sensible thing to do until you consider the software, HR fees, and travel expenses that come with a full-time employee. The additional costs can add up to several tens of thousands of dollars and stretch your budget.
Start Putting Your Marketing Dollars in the Right Places
I get it. Budgeting sucks. You’d probably rather be creating pitch decks for investors or brainstorming creative concepts for your next product video.
So leave the job to the performance-driven team at Model B. We have worked on 100+ performance marketing campaigns and delivered the highest ROI for our clients. We can help you figure out what you need to, or should spend, based on your target revenue goals and our past performance.
We leverage creativity, data, and technology that enables omnichannel intelligence and delivers results, exponential growth, and increased revenue. Tap into our brand expertise and work with top talent to transform your marketing into a 24-hour lead generation machine.
Book a meeting with us and we’ll be more than happy to explain how we can help you. Let’s get it started!
