🎙️ Hey there, SaaSpreneurs!🎙️

We hope you're having a fantastic day! We're back with another episode of SaaS Metrics School 🎉, and this time we're diving into the important topic of allocating sales and marketing expense between new and existing business.

In this episode, I'll explain the significance of properly allocating sales and marketing expenses in order to calculate sales and marketing efficiency metrics accurately. 📈

💡 Key Concepts to Learn 💼

✅ The Importance of Allocation: If your SaaS company is at an early stage with only one product line, your focus is likely on acquiring new business. In this case, 100% of your sales and marketing expenses are associated with acquiring new customers. However, if you're at a later stage with multiple product lines and expansion opportunities, allocating between new and existing business becomes critical.

✅ Sales and Marketing Efficiency Metrics: This allocation directly impacts crucial metrics like CAC (Cost to Acquire One New Customer), CAC Payback Period, and the Cost of ARR (Annual Recurring Revenue). Allocating resources appropriately ensures these metrics are accurate and reliable.

✅ Objective Allocation: When it comes to sales, a practical approach is to consider headcount. How many reps are focused on new business versus expansion? Allocating sales expenses based on this criterion can provide an objective view.

✅ Ambiguity in Marketing: The allocation becomes a bit more ambiguous when it comes to marketing. It's essential to have open communication with your marketing leader to understand how their efforts and budget are divided between new customer acquisition and expansion strategies.

✅ Monthly Updates: Remember, this allocation exercise needs to be done regularly. Headcounts and resources tend to change each month, so it's important to update your allocation accordingly. Include these updates in your reporting package to maintain accurate metrics.

And there you have it for this episode! Just a friendly reminder that SaaS metrics may seem straightforward at first, but the nuances are so important. Subjectivity and nuances can impact the accuracy of your metrics.

By allocating your sales and marketing expenses correctly, you can ensure your metrics tell the right story and guide your decision-making effectively.

If you found this episode helpful, make sure to tune in to future episodes of SaaS Metrics School to broaden your knowledge on essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,

Ben Murray
Host of SaaS Metric School

🎧 Episode Recap 📝

Ben sheds light on the need to allocate sales and marketing expense between efforts focused on acquiring new business and expanding existing business. If your SaaS company is in its early stage, with just one product line and no expansion potential, your sales and marketing expense is solely associated with acquiring new business.

However, for those in the later stages, with multiple product lines and the ability to cross-sell or upsell, it becomes crucial to consider the allocation between new and existing business.

This allocation affects key metrics such as CAC (cost to acquire one new customer), CAC payback period, and the cost of ARR (annual recurring revenue).So, how do we determine this allocation? Ben suggests starting with the headcount of your sales team – how many reps are focused on new business, and how many are dedicated to expansion efforts.

As for marketing, it's a bit more ambiguous, and discussions with your marketing leader are essential to know where their efforts and budget are being directed. In practice, we usually see a split of roughly 70% towards new business and 30% towards expansion efforts.

However, this split can vary depending on your specific situation. Remember, it's important to update these allocations monthly, as resources and headcounts change constantly.