How much should you spend on marketing?

I get this question a lot.

But even though I’ve been working with software-as-a-service (SaaS) companies for more than 15 years, I still don’t have an answer.

Or at least I don’t have a simple answer.

To answer that question – how much should we spend on marketing - first you need to answer a second question – how much revenue are you generating from your marketing.  The two questions go together.  Just asking the first, by itself, isn’t very helpful.

To know how much you should be putting into marketing, you need to know how much you’ll be getting out of it.

The SaaS metrics gurus express this as customer acquisition cost (CAC) relative to customer lifetime value (LTV).  (See “Acquiring Customers Ain’t Cheap.”)

Think of customer acquisition like a machine

A former colleague explained the concept to me like this.  SaaS companies are trying to build a customer acquisition machine.  This machine turns the marketing and sales investment into customer revenue.

When the machine is working well, for every dollar you put into the machine, at least three dollars comes out. 

By contrast, a poorly functioning machine turns every dollar into 80 cents.

So, to get back to the original question – how much should you spend on marketing - if you’ve built a well-functioning customer acquisition machine and it turns one dollar into three dollars or more, you should spend as many dollars as you possibly can.  At least until the machine stops working.

Where’s the best place to spend your marketing budget?

Here’s a related question I get often and again one that I can’t answer simply. 

There’s certainly no shortage of options:  SEO, pay-per-click, email, LinkedIn, webinars, social media, events, ad infinitum.

I’ve tried them all and in all kinds of combinations.  Some have worked well, others not so well.  What works for some companies doesn’t work for others, and some tactics that work well at first sometimes just stop working.  (See “SaaS Marketing Tactics:  Do Whatever Works.”)

Sorry I can’t answer the question directly about where to spend your marketing resources most effectively, but I can suggest two ways to help you find out.

1.     Try different tactics, measure what works, and make adjustments. 

2.     Ask your customers where they look for solutions like yours.  Ask how they found you.

So, there you have it.  Two common questions with no simple answers.  Yes, SaaS marketing can be difficult.

Are you just talking about marketing or are you actually doing something?

Lots of software-as-a-service (SaaS) companies are thinking and talking about marketing.  They’re

sitting in on webinars, downloading white papers, hiring marketing experts and agencies, and even reading newsletters (like what you’re reading right now.)

If they want to grow, the folks that run these companies know they need marketing: a cost-effective program to generate leads, convert the leads into paying customers, and keep those customers.

They can’t rely on their sales team to bring 100% of their opportunities.  Though it may work in the company’s early stages, it’s tough to make that method scale.

So these executives do lots of research, develop comprehensive plans, even engage with marketing professionals to put in place a well-structured customer acquisition and retention plan.

Marketing gets derailed by shorter term priorities

All of this activity is a good start.  But that’s all it is: a good start.  The research, the plans, the experts only matter if you put them to work.

And that’s where things get complicated, especially for smaller firms eager to grow. 

For companies in this spot, their resources are stretched.  There’s simply too much to do and not enough resources to get it done.

So urgent needs take priority, and the marketing tactics get pushed down the action list:

·      “Yes, we need to prepare customer success stories, but this week we need to prep for 5 demos.”

·      “Yes, we need to coordinate an email campaign, but right now we’re focused on this RFP.”

·      “Yes, we need to get out that quarterly newsletter, but these 2 deals need immediate attention.”

·      “Yes, we need to prepare a webinar for prospective customers, but today we need to [ fill in an urgent item of your choice here.]

Don’t let another year go by

I get it: you’ve got lots of stuff on your plate.

And implementing effective marketing plans takes a sustained commitment.  It doesn’t happen by itself, and there’s no magic, one-time fix. (See “Going viral is over-rated”) 

If you’re serious about growth, spend the time and spend the money it takes to cost-effectively acquire and keep customers.  According to a survey of 378 privately-held SaaS companies, the fastest growing companies spent the most on customer acquisition, and marketing accounted for at least 30% of those costs.   

So, if you’re putting your plans together for next year, now’s the time to commit to marketing.  Not just the planning, but also the doing.  Find resources within your company, bring on new people, or use outside experts. 

I don’t mean to scold you here, but a year from now, you don’t want to look back and regret that you’ve made no real progress.  Start with a marketing plan and then put it into action.

Your value proposition: Don’t set it and forget it

If you’re marketing your SaaS solution without a compelling and consistent value proposition and messages, you’re doing something wrong. 

Without a value proposition – a crystal clear explanation of who should buy your solution, what problem it solves for them, and why they should buy it from you – you’re missing an essential foundation for all your marketing efforts.

You may be cranking out papers, email campaigns, adword buys, videos, or whatever.  But without a compelling value proposition, told consistently through all of these programs, it’s hard to have any real impact.  You may well be wasting your marketing budget.  (See “To deliver a consistent message, you need a script.”)

An effective value proposition and messages should have a fairly long shelf-life – a few years wouldn’t be unusual.

After all, it’s tough enough to get the attention of your target buyers.  Revamping your messages every few weeks, trying something different in every marketing deliverable, would make that job impossible.

 Value propositions are not cast in stone

But don’t read that as the 11^th commandment: “Though shall not change your value proposition…ever!” 

As the market changes over time, your value proposition and messages may need to be adjusted as well.

As markets mature, new buyers are likely to come into the market.  “Mainstream buyers” or “laggards” may displace the initial cadre of more adventurous buyers.  They may be less enamored of cool technology, and care more about support, training, security, and stability. (See “Pivoting from early adopters to mainstream buyers.”)

As solutions become more widely adopted, or new competitors come into the market, it may be that buyers’ expectations change.  A feature that you once touted as new and novel, may no longer be so new or novel.

Over time, it may be that more people are involved in evaluating your solution.  Purchase decisions are no longer made by a progressive sales branch manager or a technical head in development, acting on their own.  Now they involve corporate IT and senior executives.

Keep your finger on the pulse

OK then, how do you know when changes to your value proposition are needed?

Stay in touch with your customers, that’s how.

And not just through training or the customer support team.  Dedicate someone to talk regularly with customers, especially new customers.  Ask them why they’re buying, who’s involved in the decision, and why they chose your solution.

Don't worry.  No giant, multi-page survey is required here.  A few open-ended conversations over the phone, done every month or every quarter, will reveal a lot of information – enough to detect important shifts in the market.  (If you don’t want to allocate an internal person to this task, get in touch with me.  I’ve done them on behalf of several clients.)

You don’t want to be constantly fiddling with your value proposition, but you cannot simply set it and forget it forever.  You don't want to find yourself talking to the wrong people with the wrong message.