Benchmark Your Marketing Budget to a $100M SaaS Co.

Scott Gainey
The Problem:

Budget misallocation; over- and under-spending in essential marketing categories.

The Solution:

Budget category benchmarking for a $100M ARR high-growth SaaS company.

Interesting Stories/Points:
  • SiriusDecisions recommends using 12% of total revenue for marketing.
  • Here are the SiriusDecisions (SD) recommendations by category, as well as Scott’s suggestions for a $100M ARR high-growth software company:

Presenter

Click on the Google Sheet below to view the live example, or download the Excel sheet here.

 

  1. Overview

I’m Scott Gainey. I’m chief marketing officer at Cherwell Software and I’m going to spend a few minutes today talking through a budget exercise that I went through coming into Cherwell. Just to make sure that we had proper distribution of budget both from a people and program perspective across the organization

 

So coming in to Cherwell, I saw pretty immediately there was an imbalance of how our budget was being allocated. Predecessors of the past had put a disproportionate amount of funds into certain areas like large industry trade shows and certain types of digital marketing like content syndication and felt like there wasn’t proper balance in distribution that really at the end of the day mapped to what our revenue expectations and targets were.

 

by the end of this session hopefully you’ll have a nice model that you can use from a top down basis to both look at how you could appropriately balance funds across your organization, as well as I think this becomes a good tool that you can use to report back up to both the executive leadership team as well as the board. And then you’ll see some benchmarks in here in terms of how I’ve allocated funds relative to how SiriusDecisions recommends funds allocation. And I’ll give you some justification in terms of why I might be over or under what SiriusDecisions recommends.

 

  1. Budget Forecast Layout

So what you see in front of you is just a very simple spreadsheet that I’ve created. It’s broken into two parts; in the top part you’ll see the overall fiscal budget forecast. So starting with the revenue number at the top, ending with the total marketing budget to support that revenue number, and then below that the next big block is the overall fiscal year program budget. So this is all the little sub elements of our program budget broken up demand generation, corporate communication, events, etc.  

 

So let’s go back to the overall fiscal year budget forecast. So what I’m going to do is just start with the top level, let’s talk about revenue right and what the revenue expectations are for that fiscal year. And then am going to end up at the bottom talking through just that overall total marketing budget.  

 

  1. Marketing Budget Buckets- $100M ARR

What we have here is a model. This model is based off a company that is roughly 100 million in revenue. This is SAS based company with a growth rate roughly around 35% year over year. And so in this case I’ve got 100 million loaded in here as our worldwide revenue number. And then that number in terms of then equating that in terms of what the marketing budget should be is then mapped. If you look over here on the bottom left, SiriusDecisions, for a company of this size and growth level, the sort of the top of the bell curve if you will, says roughly 12% of revenue would be allocated towards marketing. So in this case my model’s actually a little bit below that so you can see that this particular company had a $11.5 million annual marketing budget we’re at 11.5% of revenue. So slightly different than what SiriusDecisions recommends for a company of this size and growth rate. And then you can see from there I’ve broken this out in to our overall program budget and I’ll go into more detail about that below. So that number is just simply pulled from what you see below in this box also includes our overall people budget. So this is our fully loaded budget for our staff across the team so this includes not just base salary and bonus but also includes in this case the BDR team is part of this equation so it includes their commissions and that also includes their fully loaded costs so that means all the benefits and everything associated with maintaining that staff.

 

So that’s 5.1million out of this. Also includes travel expense across the team, includes budget for overall systems and tools. So things like your marketing automation systems, any tools that you’re using across your BDR team like playbooks, and then finally a budget for outsourced services. So this includes things like creative services, any sort of consultative services you might be using, in this case maybe for a build out of a new website, could be implementation of your marketing automation system. So those types of costs are included in that outsourced services. So in this case you see this model, you know where in some cases we’re pretty close to what SiriusDecisions recommends in terms of allocation.

 

  1. Program & People Budget Review

So in the case of our program budget we’re currently at 45% of overall marketing budget whereas SiriusDecisions recommends this to be right around 43%. I think generally what I found is as long as you’re in the ballpark, plus or minus a few percentage points, that’s fine. In the case of people budget, we’re pretty much right on where SiriusDecisions recommends. Now I would say just my experience in this area I think 44% is a true number that you want to try to strive for. If you’re too high, I found across the team there tends to be a bit of misuse of funds. They’re flush with cash, they tend to overspend and maybe not think as diligently as they should in terms of how those monies are being allocated out. If it’s too far under 44% I found that you have…You’re too overweight. You have the wrong proportion of people and dollars and sometimes you’ll run into people they simply don’t have enough budget to spend and boredom and other things sort of set in after that.

 

  1. Travel, Tools, & Outsourcing Review

Travel, this is a hard thing to calculate. I think the only best way you can really get to this is to really look at the run rate other teams. So in fact within my current position we’re still trying to back into this number. We’ve looked at Q4, we’re looking at Q1 expenses and then from there we’re going to land at what we believe to be our quarterly run rate. So in this case I’ve loaded in 94,000 just based on kind of what I believe a team or staff of this size would spend on an annual basis. Systems and tools, as I mentioned this is going to vary from group to group. We’re actually low in this particular model, what I did for this particular example was just look at a company that…And in this case is going through some early investment, right, so some change with existing tools that they have in place. I expect this would trend more towards 6% as opposed to the 2.6% so you’d probably want to factor in this case this going up fairly significantly as you mature your organization and you start to look at other marketing technology that’s available out there. And then outsourced services at 820,000 pretty much spot on with at least what SiriusDecisions recommends there and I think that’s kind of a good indicator for level spend for a company that’s at about 100 million in revenue

 

  1. World Wide Program & Demand Gen. Budgets

So the next detail to get down and look at is really that overall fiscal year program budget. And so there’s a couple things here that I want to point out and so some of this just goes with my own personal philosophy and that’s that I do feel often times particularly US headquartered companies tends to overweight the spend in North America right and I think that’s just something that’s asymptomatic of a lot of companies that have large corporate marketing organizations surrounding their headquarters. And so in this case what I’m really trying to do is balance those budget spend against the anticipated revenue of the company. So in this case, for this particular model I’ve taken a company that…Which I believe is typically the case for a software company around 100 million in revenue you’re going to have a split ordinarily around 75, 20 and 5 for North American revenue versus ANEA revenue and Asia revenue. So in this case you have a company that’s fairly mature in North America, kind of mid level maturity in ANEA and it’s just getting started in Asia. Likely they’ve got some initial footprint with Australia, New Zealand and are working their way northward. So the distribution of funds here in the case of demand generation is really balanced to what those expected revenue targets are. So in this case as you see you’re with 2.3million allocated towards demand generation a little over 75% of that is allocated towards North America, so that’s in line toward what our revenue target is. A little over 20% to ANEA, and a little under 4, 5% for Asia. So I think, again, if you’re within sort of a +/-1% I think that’s fine. So the net for this area is a total demand gen spend of 3.2million. So in this case that is a little bit light and again these are recommendations, these aren’t hard fast rules so SiriusDecisions says it should roughly be 52%. In this case I went a little bit more aggressive on the demand gen front. And that’s in part because for me personally what I goal the team on is a slightly higher contribution to pipeline than maybe what SiriusDecisions recommends. Typically for a company of 100 million in revenue roughly mid 30% growth rate SiriusDecisions will tell you that on average the marketing team generates roughly around 25% of total pipeline. In this case I am sort of fictitiously gosling the team on a much higher percentage. I am saying that this team should actually contribute around 40% of the overall pipeline for the company. And that tends to be what I guide my teams towards anyway, so I’ve built that into this particular model.

 

  1. Corporate Communication & Conferences

Now on corporate communications, so this is your typical PR functions, this also includes money allocated towards internal communications and then also some money allocated for more corporate level branding exercises; so some things that we’re doing across social media today. And so here you see 23% of the overall program budget is being allocated towards corporate communications which I think is right in the wheelhouse of where you should be for a company of this size. I have another line item here which is global corporate events. So these are your large user conferences that you hold, in the case of Cherwell we actually hold a conference in the US and one in Europe. And so there’s a fairly low total here and that’s because these conferences are designed for the most part to be cost neutral, right, because you’re selling sponsorships, you’re selling registrations to help offset your expenses. So the actual cost for these conferences is reasonably low, but it is a line item and there isn’t really necessarily a guideline that I found out there in terms of what percentage of your budget should constitute global corporate events.

 

  1. Product Marketing & Market Intelligence

Then the next line item is our product and solution marketing budget. So in this case SiriusDecisions recommends 12% of your spend to go into this area. I’ve modeled lower on this and so there’s a couple ways that you can play this out. In this case you just have to kind of feel out the team that you have, right, in this case and this is the instance within Cherwell, we tend to do a lot of our own writing internally as opposed to outsourcing this to contract writers and so that’s just my personal preference that I’m invoking in here. So this budget is a bit lower, I call that sweat equity that we apply to building and writing new content as opposed to outsourcing. But of coursed based on SiriusDecisions model, you can certainly have room to go higher there.

 

Market intelligence we’re a bit higher than what SiriusDecisions recommends here. So in this case the assumption that I’m building into this higher spend is that even at 100 million you’re still a relatively small company very likely competing against some large more well known companies. You very likely are not in let’s say a leadership position quadrant with regards to Gartner’s Magic Quadrant or in a leadership position with something like the Forester Way. So here you’re going to want to have a higher budget for a number of reasons, one of which simply to have that airtime with the analysts both to try to influence them as well as to get their suggestions, advise as you grow in to the market place and try to take advantage of the intelligence that they can bring you. So in this case I modeled a bit higher than what SiriusDecisions would recommend.

 

  1. Technical Alliances

Again, this is the case for responsible for our technical alliances so this may not be the case in your respective examples but I do have a call out for this so in this case you know we do have some strategic alliances that we work with, you want to make sure that you have some budget appropriated to attend their sales conferences if you’re invited to attend or also attend some of their own user conferences. And so this is one of those costs that you know in some cases is purely for the purpose of building our relationship and not necessarily just for the purpose of demand generation so that’s why I don’t have that amount built into the demand generation budget.

 

  1. Channel Marketing & Marketing Operations

And then a couple of things you’ll notice here are zeroed out. Talk to this, so again this is my philosophy around channel marketing. So I have channel marketing really built into this demand generation bucket, so SiriusDecisions says 5% of that program budget should be allocated towards channel marketing. My philosophy on this is your demand generation bucket, really which is largely led by your field marketing team should if you do this right, if you’re a company that is focused on building out a rich channel, should really be paired with channel partners in the region. It gives you a chance to work very closely with some key partners, applying some of your funds and resources to helping them be successful that turns into goodwill back towards your company and also it gives you a cost sharing opportunity because oftentimes our strategic partners will also throw some of their own budget into those demand gen efforts. So that’s why I have this area particularly zeroed out just because we’ve built that into our demand gen budget.

  

And then the other thing that I’ve got zeroed out in this case is the marketing operations budget. And so right now SiriusDecisions recommends that that should be somewhere around 5%, I have at least for our organization we’ve got most of that covered up in both systems and tools and outsourced services. And so again, this is going to vary from company to company right so it depends on the state maturity your company. In our case I think we are fairly lean on systems and tools by design and I think we are sort of right where we need to be in terms of outsourced services and so I think we agreed at this point there wasn’t any need to apply any additional budget to marketing operations. But you know every organization is different so that’s an area where you might want to go and apply some budget and certainly if you follow the SiriusDecisions model you can go upwards of 5% of that total program spend.

 

  1. Conclusion

So that’s how we get to our 5,187,000 which as you see is pulled up into the program spend here which coupled with people travel, systems, tools and outsourced services nets an overall marketing budget of just over 11.5million which is around 11.5% of revenue. And so we’re sort of right in that rough wheelhouse of what SiriusDecisions recommends. Okay, so that’s it for the budget overview, hopefully you guys can gain some benefit out of this model and that’s it.

Presenter

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