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.