For an enterprise software company, what percent of total expenses should the marketing department take up?
In the end, you probably don’t want to spend too much more than 20% of the first-year customer value in marketing.
You can justify spending more if you have a long customer lifetime (e.g., true enterprise customers), material upsell down the road (then the deal size is really larger), and if you have a lot of capital to spend to grow faster.
So maybe 20% if you are leanly funded or not funded, maybe up to 50% if you have a ton of capital.
Remember, if you have a sales-driven model, sales costs are probably going to eat up 30% of that first-year revenue on a fully-burdened basis.
The thing is, if you have super happy customers, Second Order Revenue really matters. Getting the most happy customers in the door, as fast as possible. So it’s worth spending more to get them in earlier. It’s worth spending almost as much as you can afford to. It’s that kernel of super-happy customers early that spawns 100x more super happy customers later. Start that slow, but real cycle as early as possible, and the returns are mammoth over time.
And the other thing is, all marketing programs don’t perform the same. Typically, once you have a mini-brand, you’ll get a lot of leads for close to free. From referrals, from your brand, from content marketing, etc. So the ones you pay for … those initiatives and campaigns you are often lucky to be able to spend $ 1 to make $ 1 in year one. Put different, if you acquire 1000 customers this year, and 800 are from “free-ish” lead sources, it’s totally ok to spend $ 1 to make $ 1 on the other 200 in many cases, especially if those customers have a long lifetime. Because on a blended basis, your CAC is still modest.
So be careful of blended numbers. Even if on a blended basis you want to spend 20% of each Year 1 dollar on customer acquisition … you may have to spend a lot more on the ones that aren’t close to free.
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