What should your marketing budget be?

Of all the questions clients ask me, and they’re not always startups, either, this one is easily in the top three: How much should I put into my marketing budget? I used to reply with, "How long’s that piece of string?" But when I thought about it more and considered the variables, I came up with some actual answers that were pretty consistent.

Annual recurring revenue and budget

The first variable is whether you bring in US $120K annual recurring revenue or about $10K monthly. This variable is important because it’s a milestone that moves a bootstrapped SaaS from a punt on a hobby to an actual business. When you start turning over more than $10K a month, you have money coming in that you can reinvest into the business, depending on your lifestyle choices. It’s enough to pay yourself and bet on what will help you grow.

Marketing is generally an obvious choice at that point.

Before you hit that milestone, the answer to how much your marketing budget depends on whether you’re in the right space to learn or not. But generally, I say, don’t outsource too early. Agencies will happily set your money on fire without understanding the market you haven’t won over yet. Hire help after you’ve got traction.

Would I change the rules if you had funding? Probably not. $10K is also a nice validation signal. It shows that people are willing to buy the product. You could be a millionaire with an orange juice stand, but it doesn’t mean much if no one likes your product. You’re still just a millionaire with a lot of oranges.

Target market categories

After you hit the $10K milestone, the numbers are pretty simple (and surprisingly stable), whether you’re hitting $120K or $120M. From then on, the primary variable is how your product aligns with a market and how specific that market is. Generally, I find these sit in 5 categories.

Let’s break them down.

Budgeting for a niche saas

A niche SaaS solves a problem for a particular persona in a business or a company in a very particular industry. If you’re focusing on a niche, you’re specialised, and your market scale reflects that. It’s not hard to find your target audience, and it’s not hard to reach them. So what you’re investing in is resonating with them. That might mean content, sponsorships, free tools, or lead magnets.

Whatever the combination, you should put around 10% of your investable cash into marketing, meaning the money you have to spend on your business after you’ve sorted yourself out. That number includes the cost of paying anyone you hire.

Budgeting for a vertical saas

Next up is vertical or industry-focused SaaS. There are no surprises here. These products focus on an industry and may help a variety of personas within that industry. For example, if you have a CRM for Manufacturing, that will potentially help a wide range of roles, but the message is for the industry first. It’s not hard to herd a vertical market either, thanks to industry associations, events, blogs, magazines, and the list goes on. But it does start to get a bit more expensive to reach them because, well, there’s more eyeballs than in your niche audience. For this reason, the investment in marketing: 20%.

Budgeting for an orthogonal saas

Similar reasoning also applies to orthogonal or persona-based SaaS. This is software that is often for a particular role or department, in any industry. For example, Workday is by and large for HR departments in any industry. It’s easy to find events and online communities where people in this role hang out. You can even get a list on LinkedIn in about 45 seconds of every lead you have. But unless the role is highly specific, you’re looking at a 20% investment as well.

Budgeting for a horizontal saas

Then we have the big one: horizontal or problem-solution SaaS. These products are for any role and industry, anchored by a shared problem. In B2B software, usually that problem is productivity, so think of products like Slack, Monday.com, Google Docs. These markets are huge, but they’re also noisy. If you’re looking to take on a horizontal market or are not ready to niche down yet, you should invest at least 30% in a marketing pot.

Now, you might be thinking, “You said five types!” Right, and the last one’s a little wild.

Budgeting for a service-focused saas

If you are service-focused, it gets a little more complicated because you are forced to divide your budget between marketing your service and marketing the product that sells your services. Is the service dependent on the product? Is the product a lead magnet for the service? And who is the service for — a vertical, orthogonal, or horizontal market? Start with the latter category and work backward to decide how much goes into each business area within marketing.

So now what

So you’ve got your budget, now how do you spend it?

Okay, we’ve sold you a jet ski in the desert here. But let’s save finding a lake for another post. Unfortunately, this is where it really does depend on the product, goals, and market more than a simple "if you are X, do Y."

For now, just remember to invest based on what you can afford and the type of market you’re trying to reach. That piece of string I always used to talk about might still stretch, but at least now you’ve got a measuring tape.