Budgeting for SaaS marketing based on efficiency metrics in 2025 is Hail Mary. Change my mind. Like most marketers, in the last few weeks I’ve been sweating to come up with a forecast and budget for 2025. And then (better late than never) I’ve read Emily Kramer’s post on “How to calculate your marketing budget—and make sure it's efficient" & tried to implement the efficiency metrics, and marry my “top down” and “bottom up” forecasts. And realised it’s almost impossible with the number of marketing “unknowns” 😬 Your budget, ofc, starts with a revenue gaol. Say you are at 5 M ARR and want to add $2,5M in net new ARR by the end of 2025 - 50% growth. Add churn of 10%, and you need $3M in gross ARR by the end of 2025 to hit your target. With qualification rate of 50% & close rate of 25% - you need $12M pipeline and $24M in “MQL pipeline”. With ACV of e.g. $40k on average - you need just 600 MQLs… Now - you divide your revenue goal by your CAC ratio, and multiplying by the % of marketing spend in your entire CAC. Let’s say last year you produced $ 1.5 for every $1 you spent & 50% was marketing. You divide 3M by your CAC ratio of 1.5. That’s 2 M. 50% goes to marketing. And now you have $ 1 million in marketing budget! This is your top-down forecast - working your way backwards from the revenue goal, all the way up to the leading metrics. Now you need to marry it with a bottom-up forecast - which “starts at the very top of the funnel (with web traffic and/or accounts in addressable market), then forecasts revenue based on historical data and planned increases in volume and conversion rates.” Knowing you need 600 MQLs and have $1 million in marketing budget - the fixed costs of salaries and tools - you’re left with your channel budget - for ABM, cold search ads, and SEO content spend etc. Now you need your historical data - MQLs generated last year from each channel, cost/MQL & the growth rate - and what is the delta between how many MQLs you can realistically generate this year based on your historical data vs. what you *need* to generate to hit your revenue goal. And that’s where the cookie really crumbles. I can tell my content team “hey, we need 25% more MQLs from SEO this year.” But traffic growth is not linear, especially in the days of such SERP volatility and generative AI eating up search traffic more and more every month. Conversion rate optimisation from content overall is super hard - the harder the larger your op. Same for cold search/ABM - we can *roughly* predict our spend…but can’t predict the SVs, or how your competitor’s moves will affect the CPCs/CPMs. So marketing budgeting is a helpful exercise to have a rough idea how realistic the revenue goal is - but operationalising into a forecast is a Hail Mary. So the budget & OKRs need to be taken with a pinch of salt - otherwise it will create a stressed-out team chasing short-term goals with a myopic strategy - which can have a bad impact on your brand in the long run.
Wow, I'm saving this post. This is the best crash course on budget projections I've ever seen from a marketer. This is amazing.
Iyke Abel
1w
I love the breakdown. It's easier to forecast your budget, but more difficult to forecast the results.
VP of Marketing @Userpilot. Author @ Product Rantz.
1wHere's the original post by Emily btw - https://newsletter.mkt1.co/p/budget - defo a recommended read on marketing budgeting!