Hey there! If you’ve booked a call with Credo in the past two years, we’ve likely spoken about your marketing budget.
If not, let me introduce myself…
I’m Emily Faxon, head of Client Success at Credo.
I am in charge of listening to your marketing needs and then introducing you to the Pros I believe will help you accomplish your goals. I weave my knowledge of the Credo Network and my background in recruiting to make the right introductions.
And let me tell you, I love when I get it right. Connecting people to solve problems is one of my favorite things in the world!
Over the past two years, I’ve spoken with thousands of business owners, marketing directors, and project managers who are looking for help with different marketing channels or marketing objectives.
While every business is different, the end goal is often the same: how do we increase awareness, generate the right leads, and grow our business?
The answers vary and depend on your industry, specific goals and timelines – and your budget.
In this series: ‘Just the Fax: Things I’ve Been Asked During Marketing Evaluation Calls’ I’ll lay out and answer the common questions I hear with data from the Credo Network and my own experience as a marketing matchmaker.
Question: How do I set a marketing budget?
I get this question almost every day.
Sometimes it is more specific: “how much should I spend on SEO?” or “how much should I spend on this particular ad campaign?”
There is no concrete answer. However, you can see the economic environment (slump in spending during C19 event) and other factors dictate the mean of marketing budgets as a percentage of total revenue.
This graph gives a ballpark estimate of what other businesses spend but ignores discrepancies from one vertical or industry to the next, among other variables.
More often than not, people just want to know the average a company like theirs spends on marketing. And that makes total sense!
You want to spend enough to keep up with or outpace your competitors.
You want to spend enough to see actual growth, ROI, and customer acquisition without spending so much that you feel like you’re tossing money out the window.
Or worse, that you are spending on advertising that just isn’t moving the needle.
There needs to be a balance. And it would probably feel better if there were rules or guidelines to achieve that balance.
Helpful Tips To Set Your Marketing Budget
There are some benchmark figures to keep in mind before we dig into the data.
To calculate your overall marketing budget, you need to know the following things:
- Monthly and annual revenue.
- Current monthly marketing spend and an average number of new customers acquired per month.
- Your current customer acquisition cost (CAC)*.
- Goals for growth. (KPIs & OKRs)
- The number of new customers required to hit growth goals.
* Use this simple CAC calculator to identify your customer acquisition cost.
Beyond that, you can plug these numbers into our handy marketing budget calculator. We can also do this together during our brief, 15-minute introduction call.
You can also check out our digital marketing industry pricing survey to get an idea of average agency hourly and retainer rates.
The calculator will not tell you which channel to use or what percentage of your budget should go to a particular channel. What it will do is give you an idea of how much you should spend per year to hit your goals.
Odds are, it’s more than you think.
Monthly SaaS Marketing Budgets in 2022 Average Around $5,500
January 2022 By The Numbers
In January of 2022, 10 of my calls were with SaaS businesses. Let’s break down their marketing budgets.
Five of the projects had a budget between $2,500-$5,000/month (let’s call this a $4,000 average budget) and five had a budget between $5,000-$10,000/month (let’s call this $7,000).
If we average out the monthly retainer for those projects, it comes to $5,500/month. Keep in mind this does not include ad spend.
March 2022 By The Numbers
In March of 2022, 11 of my calls were with SaaS businesses. Their budgets also ranged from $2,500 to $10,000 per month, averaging out at $6,545/month not including ad spend.
June 2022 By The Numbers
In June of 2022, 4 of my calls were with folks running a SaaS business. Their marketing budgets ranged from $2,500 to $10,000 per month with an average of $5,500/month not including ad spend.
So $5,848 is the average retainer that our SaaS clients are budgeting for to work with an agency per month.
Now, each agency charges differently for different services, and things like content creation or development tend to be more expensive than ad management.
And these budget averages only reflect the retainer fee, not additional ad spend.
Consider Contract Length
It is also important to note that most contract lengths run from 6-12 months. So a marketing budget for just the agency retainer ranges from $38,000-$70,000 per year for most companies coming through Credo.
This is a good proxy for the rest of the marketing landscape.
An average SaaS business should expect to pay between $38,000-$70,000 per year for marketing services with an agency.
If your budget is less than that, you’re probably in the territory of owning a lot of the marketing in-house while working with some freelancers to fill skill gaps.
Average Agency Retainer Across 2022
Let’s zoom out.
Below, is a sample of ten projects from 2022 won by Credo Pros. We see that the average monthly retainer is $4,465 across all project types and all business types.
Of those 10 projects, 6 of them had a monthly budget for paid ads.
The smallest (at the time of our initial conversation) was $1,000/month. The largest was $30,000/month. The average monthly ad spend for these projects (PPC, Google Ads, Facebook Ads) is around $10,600/month.
Some of these projects (the one with $1,000/month ad spend, for example) were in the early stages of ad spend, testing channels and seeing if Google Ads worked better for them than Facebook Ads.
They knew that they were ready to increase their spend – with an agency’s help.
Others had more established marketing strategies. Most of these preferred to have their campaigns taken over and managed by someone who had more experience and a turnkey marketing management strategy.
Therefore, if you are running paid ads, a good portion of your total marketing budget is going to ad spend
Start Small and Scale Up is Bad Advice
Based on conversations with our Pros, ad spend below $3,000 per month isn’t going to get great results.
There are a couple of reasons for this:
You have to pay to play and, like everything lately, it is getting more expensive to place ads and get eyes – let alone clicks. According to The Drum, the cost to reach 1,000 people, also known as CPM, on Meta has gone up by 61% in just the last year.
2. Messaging and creative tests.
To make ads work, businesses need to test multiple messages and creatives to see which one resonates more with an audience. The faster you can find which one works the better. This means that in the testing stage, you’ll want to have a good budget so that the testing period doesn’t drag on for months. You want to find what works fast and then ramp up. This flies in the face of the “start small and scale up” advice that we see often here. That advice is wrong.
3. Management fees.
If your budget is too small, paying an agency to run your campaigns may not make sense unless they are already handling other parts of your marketing. If your ad spend is small but working and you’re actively looking to grow it and your results from your spend, then working with an agency is a great idea.
Remember: Time IS Money
I speak with a lot of people who want to start small and then expand their budget. They generally want to test ads with “the least amount of money possible.”
If that is you, and the “least amount of money possible” is under $3,000/month, you should probably run your ads in-house a bit longer before turning to an ad agency.
There is nothing wrong with starting small. We all have to do that at some point — however, the definition of small matters.
For some businesses, “small” could range from $5,000 to $10,000 for testing purposes.
For others, it’s $300 per month. If your testing budget for ads is below $3,000/month (not management fees or overall marketing budget), it is going to take a long time to test your ads and find your audience.
This brings me to my final point on the subject of budget, the old adage: time is money.
In this case, you need to think about the following:
- What is your timeline to hit your profit goals? What happens if you don’t hit them?
- Who are you paying to currently do the work (marketing, ad campaign management, customer service)?
- Are they good?
- Do you have data-driven results of their strategy?
- Could the results improve?
- If it’s you, could your time be better used doing something else for your business?
- Do you have the ability to spend more on marketing to get better/faster results?
Because, in the long run, you’ll pay for it either way.
A smaller budget means more time to get it right.
A bigger budget equals less time to get it right.
In the end, the answer to the question “how much should I spend on marketing” really does depend on factors unique to your business.
But budgeting for an agency retainer that starts around $5,500 per month isn’t a bad place to start!