Dear SaaStr: What Are Some Signs That Your SaaS Marketing Programs Won’t Scale Well?

The #1 flag your marketing efforts aren’t working is that you are spending too much — but importantly, in the aggregate.  Don’t overindex on any individual campaign or initiative.

Let me dig in a bit. Most SaaS companies, once they have a mini-brand, start to get some amount of organic, “free” leads. People hear about you. They come to you. Not a ton, at first, but some. The CPA here is basically $0.  And that’s the boost that all marketing teams get.  It flatters marketing.  It makes it look more cost-effective, and effective overall, than it really is.

All paid marketing is expensive in SaaS. All of it. You’ll wince and cry. A sponsored webinar for $35,000? A trade show for $80,000? Paid lead services at $100 a lead? Adwords at $5 a click, and $1000 an effective lead?

But if things are going well, on a blended basis, at least, it should all work out. Your marketing costs should be < 3–6 months of your first year ACV, averaged across all sources of customers, including free. Ultimately, all the best software companies get the majority of their new customers from word-of-mouth and referrals. You need to invest there, too. But even once you put real $$ there, the CAC will be low.

So my rule from all of this is basically, invest in any marketing program that even returns $1 for $1 spent. Yes, that’s expensive. But if your brand is strong and your customers are happy, and second-order revenue kicks in, that should blend to a decent CAC when you add in the free-ish leads. And if those customers are happy, that $1 will beget $5 and $10 over time. So it’s worth it. More on that here:

CLTV Isn’t The Whole Story. Don’t Shortchange Second-Order Revenue.

If your head of marketing can’t even do that — if your total marketing spend / total new customer (paid + free) revenue doesn’t make sense — it’s a sign to get rid of them.  That may sound harsh.  But they’ll just spend all the money.

(note: an updated SaaStr Classic answer)

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