How Much to Spend on Sales and Marketing?

Knowing how much to spend on sales and marketing is always a tough question to answer. Rarely can a SaaS business spend too much, unless the business is not ready and the spend would be ineffective. Let’s dig in!

According to SEC filings, for the calendar year of 2021, or the fiscal year ending January 31, 2022, Salesforce reported over $26B in revenues. They also reported 73,541 employees. That equates to $360,234 revenue per employee which is higher than typical rules of thumb floating around out there in the SaaS world.

Perhaps it is their spend on marketing and sales helping them beat the averages? During the same period as mentioned above, Salesforce reported their sales and marketing expense as nearly $12B. This high spend on sales and marketing equates to 44.7% of total revenues and 62.7% of total operating expenses.

44.7% of Total Revenue on S&M

Before we go any further talking about how much Salesforce spends on sales and marketing, let’s point out the 44.7% is the second LOWEST percent of revenue they have ever reported. The only lower year was 44.3% in 2018.

For most SaaS companies, spending $12B on sales and marketing is not even imaginable. Then again, neither is spending 44.7% of total revenue. To put this into perspective, for a $5M SaaS company, 44.7% of revenue would be $2.2M per year, or $186K per month. Wouldn’t a $5M SaaS VP of Marketing love to have $186K per month for building pipeline!

Of course, to grow topline 24.7% like Salesforce during 2021, it takes a great product market fit, a large total addressable market, and high net dollar retention. It also takes money. Lots of money.

Let’s go back to when Salesforce was a $5M company. We must go way back to their early days over 20 years ago. In their Form S-1 filed in December of 2003, Salesforce reported their trailing twelve-month revenues ending January 31, 2001, as $5.4M.

During that same period back in the calendar year of 2000, Salesforce spent over $25M in sales and marketing, or 467% of their $5.4M in total revenues. That was the year of the Dot Com crash, and they STILL spent over $25M in sales and marketing.

Don’t get me wrong here. I’m a big fan of bootstrapping and we all know building a business takes more than spending money on sales and marketing. However, that being said, a frequent question asked by B2B SaaS leaders is how much to spend on sales and marketing.

To be blunt, not many SaaS companies can justify spending 44.7% of revenues on sales and marketing. They either can’t support the acquisition processes effectively, or they would be wasting money on churning customers.

A more realistic number of 30% across both sales and marketing. Depending on the level of product led versus sales led growth, the split will vary. A product led SMB SaaS company will require less spend on sales than a sales led enterprise SaaS company with long sales cycles.

Before jumping into the 30% deep end headfirst be sure to analyze customer acquisition cost, effectiveness of onboarding, and retention rates, especially net dollar retention. Basically, the objective is to determine if the business is ready to scale. If so, have fun generating leads and closing deals!

Photo credit to Alexander Schimmeck

If you need help thinking through this or other leadership challenges, let’s have a discussion to see if I can help in some way.

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