Many B2B SaaS companies, particularly in their early stages, struggle with defining an appropriate paid marketing budget. Although most have heard of the "Golden Ratio" of 3:1 for customer lifetime value (LTV) to customer acquisition cost (CAC), popularized by Trello's founder Joel Spolsky, applying it correctly can be challenging. Simply knowing the ratio is just the beginning of building an effective marketing strategy.

Smaller SaaS companies often face difficulties when deciding where to invest their marketing dollars. Whether it's uncertainty about which channels to prioritize, a tendency to focus too much on product, or confusion around calculating LTV-to-CAC ratios, many founders underinvest in marketing. This reluctance, often due to shortsightedness or inexperience, almost always leads to underwhelming growth.

On the other hand, companies can also overspend. If the LTV-to-CAC ratio is 1:1, they're barely breaking even, indicating they’re overpaying to acquire customers. However, when SaaS companies are hitting or exceeding the Golden Ratio, they should increase marketing spend aggressively. Failing to do so hands competitors an advantage, as they capture more market share simply by spending more on customer acquisition.

For B2B SaaS businesses, marketing is especially critical because their products often create long-term customer stickiness. Once a business adopts a SaaS tool like Drift or HubSpot, it’s not easy to switch, making customer acquisition an urgent priority. Even if customers have minor issues with a service, the pain of switching tends to outweigh the benefits of leaving.

This “stickiness” is a core value in SaaS, but it also makes the race to win clients a high-stakes competition. Ensuring that marketing budgets are optimized is key for SaaS companies to grow and avoid giving competitors unnecessary openings. In this article, we'll share a proven strategy for setting the right marketing budget and address key considerations along the way:

• Common mistakes SaaS companies make with marketing budgets

• How to work backward from target MRR to calculate a marketing budget

• How to assess payback periods effectively

What Most B2B SaaS Companies Get Wrong About Marketing Budgets

When clients come to us, they often know something’s wrong with their marketing but can’t pinpoint why. The first question we ask is simple but critical:

What’s Your LTV?

Surprisingly, many companies either don’t know or find it difficult to answer. There are various formulas for calculating LTV, and they can be complex, requiring data on average purchase value, customer lifespan, and sales costs. This information is often scattered across departments and not always easy to interpret.

We cut through the complexity with a simple formula that we find to be about 98% accurate: monthly recurring revenue (MRR) divided by monthly churn. SaaS founders usually know these numbers well, and once they see the resulting LTV, it becomes clear that their marketing is underfunded.

In some cases, founders already suspect they need to spend more on marketing. For SaaS companies with $1 million to $10 million in annual revenue, the usual increase is around $10,000 to $15,000. Even if the LTV-to-CAC ratio suggests they should invest more, this is often a good starting point. Gradual increases allow companies to observe how additional spend impacts results without jumping in too fast.

How to Work Backward from Target MRR to Set the Right Marketing Budget

Most SaaS founders know their current MRR and have a growth target in mind. With that target, we can work backward to establish a marketing budget that will help them achieve their goal.

Let’s say a company wants to increase MRR by $10,000 per month and charges $500 per subscription. This means they need to add 20 new users each month. To figure out how to get there, we first ask: What’s your demo-to-close rate?

Founders typically overestimate this, guessing around 70-80%, but in reality, it’s closer to 30-40%. This lower rate often suggests they’re targeting too many non-sales-ready prospects. For our example, let’s assume they close 1 out of every 4 demos. To hit their MRR growth target of 20 new users, they need 80 demos each month.

Next, we ask: What fraction of website visitors convert to demos? For companies just beginning their marketing journey, this number is often low—around 1%. So to generate 80 demos, they would need 8,000 new visitors each month.

Calculating the Budget

To determine the marketing budget, the next step is figuring out how much it will cost to bring in those 8,000 visitors. This depends on the cost-per-click (CPC) across different marketing channels, such as LinkedIn, Facebook, or Google Ads. We recommend testing multiple channels to identify which ones drive the most demos for the best cost.

Once we know the average CPC, it’s simple to multiply the click goal (8,000 visitors) by the average CPC to determine the monthly marketing budget required to achieve the MRR growth target.

Recap: The 8-Step Strategy for Setting the Right Marketing Budget

1. Identify a target for MRR growth.

2. Calculate the number of new users required to hit that target.

3. Determine the demo closure rate.

4. Use the closure rate to calculate how many demos are needed to sign up those new users.

5. Identify the fraction of website visitors that convert to demos.

6. Calculate the total number of clicks (visitors) required to generate enough demos.

7. Test different marketing channels to find the most effective ones.

8. Set the marketing budget by multiplying the click goal by the average CPC across effective channels.

SaaS founders often hesitate to invest in marketing because it feels mysterious or risky. But by using a data-driven approach that works backward from MRR growth targets, companies can confidently allocate a marketing budget that drives predictable results.

How to Think About Payback Periods

The 3:1 Golden Ratio for LTV-to-CAC assumes that once a B2B SaaS company earns three times what it spent to acquire a customer, the additional profit is pure gain. For companies achieving this ratio or better, we often advise them to reinvest much of that profit back into marketing.

By following the outlined steps to set a growth-driven marketing budget, companies typically scale up their spending fast—from an initial $10,000 or $15,000 to $25,000 or $30,000 and beyond. As they see consistent growth and strong returns, any initial skepticism about increasing their marketing budget tends to fade, and their focus shifts toward more aggressive MRR goals.

However, SaaS companies must pay attention to the payback period—the time it takes to recoup the cost of acquiring a customer (CAC). Profitability only begins once CAC is recovered, and for companies without access to venture capital, long payback periods can significantly limit growth. Bootstrapped founders, for instance, may find it challenging to invest in additional marketing if they’re waiting for current customers to cover acquisition costs.

It’s important to note that payback periods are distinct from LTV-to-CAC ratios. Two companies can have similar payback periods but vastly different pricing models: one with a high monthly price and short customer lifetime, and another with a lower price but longer customer retention.

While the Golden Ratio is a reliable guide for VC-backed companies, it may not suit bootstrapped SaaS firms, which usually prioritize cash flow and quick returns. For these companies, a shorter CAC payback period—typically around 3-4 months—is crucial.

On the other hand, a well-funded SaaS company can afford a much longer payback period and still remain financially stable. However, some founders with significant funding still operate with a scarcity mindset. While it's wise to monitor ROI, being overly cautious can be counterproductive. Founders overly fixated on short payback periods, despite having the resources to weather longer ones, may lack confidence in their product and underinvest in marketing. This can create a negative feedback loop: fearing market rejection, they fail to invest enough, ultimately losing market share as a result.