Founders and CEOs, when you first created your start-up and dreamt up your product you no doubt...
Marketing ROI in B2B SaaS is a straightforward metric to measure. This is how you work it out:
ROI is calculated like this: your spend £ / your closed won £.
Example: If you spend £200 and you closed £100 your ROI is 50p – that is an ROI of .5 so for every £1 you spend you are making 50p back.
This can also be worked out as a percentage rather than a pound amount, the above would have a 50% ROI.
However, although it’s simple to work out, there is a key element missing in this calculation that indicates whether your ROI is at the right level for your business and that’s taking into account how many years you’ve been marketing. The 3 things that should be factored in:
- How much revenue marketing has generated
- How much you’ve spent on marketing
- Number of years executing on marketing
Based on these three criteria, you’ll fit into a model below:
Low ROI
Low ROI isn’t something to be ashamed of, there might be a number of reasons for this. Including:
- You’ve only just got started with your marketing
- You’re on a spending spree
- You’re in the process of making improvements
- Sales cycle
- Market fit
There is every opportunity to improve this though, we suggest exploring these questions:
- Are your traffic and lead numbers increasing month on month?
- Can you see any organic interest?
- Do you know the conversions on your website and can identify where you need to make improvements or where things are already succeeding?
Sales cycle
Ask yourself the following sales cycle questions:
- Have you, at least, been actively marketing for the total length of the sales cycle plus three months?
- How much of the current marketing-generated pipeline would you need to close this year to make back the money you have invested?
If you need any further help understanding why you might be suffering from low ROI, please get in touch using live chat, or email us at ruta@lavametrics.com
Good ROI
If you’re in this camp then Congratulations, you have a solid ROI that you should be proud of.
If you are in the 'Good' category which roughly equates to adding about 50% ROI for each year of marketing activity. This category is where the majority of teams should sit and aspire to be. Here are some things to consider when you do get here.
Do you need to optimise your spending more or continue focusing on growth?
If your company has a strong renewal rate, 75%+, and your ROI is around 200%, we suggest you don't optimise further. We prefer you to focus on growth and exploring new ways of generating demand. There may be some economic reasons for optimising, e.g. lack of cash flow in the business, but if that is not the case, we highly suggest keeping to 200% ROI and spending any extra budget on growth.
Are you planning on a significant revenue expansion?
B2B SaaS business investors often want to see growth that is in multiples. So one year, you go from 500k revenue to 1m, and the following year 1m to 2m. The more times you do this multiplication, the more difficult in real-terms marketing becomes. Essentially trying to saturate a market gets expensive. When we see companies trying to grow 1m plus per year, we set ROI expectations early. Things become more expensive the faster you grow, and while the rate of 'double year on year' may be the same, going from 1m to 2m feels very different than 250k to 500k.
You should be comfortable asking for the budget you need if you are in this category. Try to keep your performance predictable and consistent, and once you get past 200% ROI, don't sweat optimising.
Extraordinary ROI
By B2B SaaS standards, you are performing exceptionally well. Our rough mathematics for the excellent category is you add 100% ROI for each marketing year that you complete. We will, however, outline some scenarios/edge cases that could throw up some challenges.
Your marketing revenue thus far has been heavily generated from your founders or SMT's network
This typically means that your cost per acquisition/spend level can stay relatively low, so your ROI stays high. We suggest milking this as long as you can but expect once you reach saturation of their networks to have another strategy ready, which will likely be much more expensive. Try experimenting and growing other channels before the need for them becomes crucial.
You are only capturing existing demand rather than generating new demand
If your focus is bottom-of-funnel demand generation e.g. ads, review engines, or even outbound email, there is likely to come a time when you finally capture that demand. When this happens, you will struggle to grow the number of opportunities per month, even with additional spending in those channels. If your targets require you to grow past that point, you will need to start demand generation, which is much slower and, therefore, likely lower your ROI.
In general you are doing great. Remember that the more market share you go for, the more likely these buyers will not be ready to buy now and get more expensive to acquire. We advocate for teams to stop optimising past 200% ROI within the year, except if renewal rates are below 75%. We prefer to spend that cash on growing instead. Keep up your fantastic work!
