David Cummings on Startups

What Percentage of Revenue Should be Spent on Marketing?

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David Cummings

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Today I had lunch with a successful marketing executive. Mid-way through the meal he asked how much we spent as a percentage of revenue on marketing. Not sales and marketing, just plain marketing. Not knowing the answer off the top of my head I did some mental calculations and came up with 15%. We spend 15% of our revenue on things marketing related (salaries, campaigns, trade shows, content, PR, etc). Being a marketing guy, he was impressed as 15% was much higher than what his company spends on marketing.

The most successful SaaS companies spend significantly more on sales and marketing as a percentage of revenue than you would expect.

It isn’t that SaaS companies aren’t investing in other aspects of the business. Rather, SaaS markets are growing so fast that there’s a disproportionate amount of money spent on customer acquisition to capture market share.

Salesforce.com spends 54 cents on sales and marketing for every dollar of revenue (source). Growing fast and acquiring customers is expensive. Marketing for SaaS companies should be a meaningful percentage of revenue.

What else? What are your thoughts on marketing as a percentage of revenue for a SaaS business?

Comments

5 responses to “What Percentage of Revenue Should be Spent on Marketing?”

  1. Mike Schinkel (@mikeschinkel) Avatar
    Mike Schinkel (@mikeschinkel)

    That tells you that 54% of every dollar you pay sales force is $0.54 you are paying to sell and market to you and only $0.46 to service you.

    Something to consider…

    Reply
  2. Dave Avatar
    Dave

    Or, you can think that they are delivering $.54 of incremental value versus the competitors that can be invested in the business to further support it’s customers.

    Reply
  3. A Growing Business Is A Smarter Business ~ It Seeks Answers Via In-Bound Marketing! | The Business Builder's Help Desk™ Blog

    […] What Percentage of Revenue Should be Spent on Marketing? (davidcummings.org) […]

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  4. Brad Avatar
    Brad

    You should look at it as a percent of bookings, not revenue since in a SaaS model revenue is a backward looking metric.

    Reply
  5. Dan Greenfield - Listen Interactive Avatar
    Dan Greenfield – Listen Interactive

    Interested post. I came across a Marketo white paper: http://www.marketo.com/library/selling-marketing-budgets-to-cfo.pdf

    It found:

    One good source is IDC’s annual Marketing Investment Planner, which analyzes technology marketing spending based on a survey of 95 large tech companies. In 2007 IDC reported an average (Marketing Budget Ratio) MBR of 3.0% of revenue on marketing (compared to 3.6% in 2006), with software vendors spending the most at 5.5%, hardware makers spending 2.3%, and IT service firms at 1.1% percent.

    The difficulty with the numbers from IDC and others is that they are an average of large tech companies. Many of these companies are in mature markets and some are operated as “cash cow” businesses earning a majority of revenue from maintenance. This skews down the average marketing spend compared to smaller, fast-growing companies – companies that typically require a much higher percentage of revenue for marketing.

    Reply

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