When cost cutting occurs, most companies immediately look to marketing to reduce spending (lucky us, right?). And, for marketers who lived through oh-so-memorable 2020 budget cuts, this year’s budget reductions amid a recession shouldn’t have come as a surprise.
For this week’s SaaS Half Full episode, Lindsey Groepper talks with Lisa Ames, CMO of Norwest Venture Partners. As the marketing expert advising dozens of B2B SaaS portfolio companies and a tenured, in-house SaaS marketer, she knows her way around operating lean marketing budgets. In this discussion, Lisa shares the question she believes every marketing leader should be able to answer at any time and how to assess where the budget should be allocated when spending is reduced.
The $100,0000 question
Lisa Ames of Norwest Venture Partners has one question she thinks every marketer should be able to answer: If your company’s board gave you an extra $100,000 tomorrow, how would you deploy those dollars?
“I’m surprised when marketers don’t have the answer,” she said, “because it’s grounded in a combination of past performance, strong rigor around metrics, and, importantly, a strong relationship and alignment with the sales organization.”
Strong sales and marketing alignment happens when everyone sits at the table. “At my time with Demandbase, that was one of my biggest lessons,” said Lisa. “Part of the reason we were successful is we came together. We ideated together at every step of the process. There was never a question of what action to take or what the campaigns were about — or what the key messages were — because [the marketing department] was with us every step of the way.”
Yet when companies must tighten their belts and cut budgets, marketing is often one of the first places to cut. As marketers, we should always know what is and isn’t working. Know your underperforming channels and identify where we’ll lean in so the business becomes more predictable.
Budget cuts coming in hot
You were told to cut your budget. Now what?
Start by determining your right-size budget. “If your new ARR plan for the year is $10 million and your total marketing budget, including headcount, is $3 million, then your multiple is 3.3 X,” said Lisa. “I like to see ARR multiples in the three to five X territory, but that’s not hard and fast because your company might be in high growth mode, or you might have a lower velocity sales model.”
Lisa also looks at program spend as a percent of gap revenue. “I like to see about 5% in the growth equity portfolio or 7% for VC-backed companies. If you’re above the line, you’re probably good, but if you’re below the line, it’s worth another look.”
Budget uncertainty? Consider contract vs. full-time employees
The breakdown of headcount versus program spend for the past decade trended about 50/50. But with B2B SaaS companies, Lisa said, “I’ve seen it trending more towards 60/40 because companies are relying more on contract workers. It is not only because of budget uncertainty but uncertainty about how their business will perform and what talent needs they may have. Some companies know they’ll need something different 18 or 24 months later and don’t want to turn over that count.”
Different disciplines work well in contract roles. If you need to make cuts or look ahead to determine what makes the most sense, consider outsourcing highly specialized roles or those that frequently change — like digital.
The best people to hire and bring in-house? Those who are generalists can wear many hats and do different things. They’re intelligent, agile and can pivot.
If you learned your budget was shrinking by $100,000, take a holistic view of your situation. Look at your investments, performance data, gut feeling, and past experiences. Blend them for the best view of what’s happening in your business — and then make your decisions.
To listen to more of Lisa’s insights, listen to Episode 336 of SaaS Half Full.