Today we get into the weeds of what working with marketing agencies should look like as a rapidly growing B2B SaaS company. We discuss the functions agencies should be performing for your business throughout its early growth stages. We address how to structure KPIs around both short and long term metrics so agencies are accountable for both quick wins and sustainable growth. We also give a ballpark marketing budget figure for software companies between $1-$10 million in ARR, and discuss why we started Kalungi, the niche it fits, and the types of problems it strives to solve.
Hello. Welcome to episode 19 of B2B SaaS Marketing Snacks. I'm Mike, former associate CMO turned product lead here at Kalungi. And as always I'm with Stijn Hendrikse, one of Kalungi's co-founders and executive CMO.
Today, our conversation centered around what to expect from a SaaS agency, both in terms of accountability and investment for a fully outsourced marketing function. We had some conversation about why Kalungi was started, including the types of problems we're setting out to solve and then we went into a couple of questions about accountability for results, which... For example, the balance between long-term and short-term metrics and then talked about a ballpark all up budget figure. Most software companies between one and 10 million ARR can expect to spend while building their first marketing function using an agency.
At the end of the episode, I'm going to ask for your help. We're in the process of building a new tool designed to nail in your marketing budget and it's a little bit more sophisticated than a lot of the typical methods that have been used in the past that we've also used in the past. For example, a lot of people rely on percentage of total ARR or fixed budgets tied to specific fundamentals.
We came to this realization that since every situation is so unique, specifically for the clients that we have, we decided there needed to be a better tool to simulate this. So we're looking for a few founders or marketing leaders to help us test the beta version once it’s ready to go. So stay tuned till the end for more on this if you're interested. All right, let's jump in.
Well, first of all, I'll start here and then we'll work into the conversation. I guess from your perspective, what makes Kalungi different from your standard agency?
Yeah, Mike, we started Kalungi in 2018. And it was after a couple of years of working with smaller software companies to get their marketing off the ground. And there were a couple of challenges that were just hard to address with the existing marketing agencies out there. As you know, I was working as a CMO, chief marketing officer, for multiple software companies... After having done that... Before that in larger companies like Microsoft. And especially when you're a little smaller, you don't have a lot of time. As a startup you get funded, you need to scale fast. There were just not a lot of good options. It's hard to hire the right talent because the really good people, they'll go work for Google or Amazon. Or the ones that you can hire that are very talented, once they get better at what they do, they learn on the job, they leave for larger companies where they can make more money or there's more career opportunity, et cetera.
So all this led to me thinking at some point... And Fadi and I, the other founder of Kalungi, worked on some of these challenges together... Both as freelancers. And it led me to think about what do you do to solve this? And I had talked with agencies also about “How do you put your money where your mouth is?” If you think your marketing that you do is really good, why can't I pay you for performance? And this was me, of course, in the CMO role when I hired agencies. And they always had great reasons why they couldn't. They said basically, "Hey, I don't control all the variables. If you let me run with content marketing and maybe SEO and SEM, et cetera, for a typical deal agency, I'm not going to sign up for results if I don't control the quality of your service. Or I'm not really influencing whether you have arrived at product market fit. Or I am not really able to influence some of the funding decisions for the company".
So it was really clear that the problem was not easy to solve. And so what Kalungi ends up doing in the first year is figuring out if we build the right capabilities... If we understand what small software companies need, can you then also take accountability for results? And that's not easy because you do have to then take ownership of more than just, for example, what a digital agency would do. In the case of Kalungi, we were able to do that because we add marketing leadership to our services portfolio together with managing and doing the work to do inbound marketing, outbound marketing, analyst relationships, even managing board communication. All those things that really go into the typical running of a marketing function for a company when you do that as the internal team. And that's really why Kalungi was started, Mike. To answer to that need: can a marketing team take accountability for results? And can you make that available to smaller software companies who have a hard time, both hiring, recruiting, finding talent and keeping them?
And I think when you talk about accountability for results. From the perspective of someone who's hiring any agency, how do you hold an agency accountable for results? What's the formula there?
Yeah. You got to be fair to the agency. In the end, there has to be a win-win relationship, right? Because you want them to stay with you as your marketing team for a while and help you get great results and also make them feel they're successful.
So the right way to think about marketing results, I think, is about balancing both long-term and short-term needs. So you need to be able to drive demand into the funnel, for example. But the demand gen has to be high quality. You have to find ways to drive demand that is sustainable, right? Things like organic search rankings in Google or building up your reputation in online marketplaces... Capterra, things like that. Maybe building relationships with analysts, right? Who start covering you... And that's a longer, more sustainable way of driving brand awareness, for example.
So when you work with an agency, you want to hold them accountable for results. You have to be comfortable with balancing the KPIs, balancing the outcomes that you expect to both reflect the things you want them to do that may not yield immediate lead generation, for example. But they yield, for example, coverage in an analyst report or maybe it yields you a rise in a position in Google search. You may not have leads... MQLs coming out of that search position yet. But if you have a very strategic keyword... A high-intent keyword where you know that if your audience is looking for that and they click on your link and they come to your website, then it's a very high value click. If an agency is able to get that keyword... That search result to go from, let's say, the second or third page of the search results to the first page, that's great progress. So we measure that ranking position as a KPI.
And I think it's fine to pay an agency for that if they're able to get it to the first page. And of course, then the next challenge would be get from the first page, get to the top three. And then of course, that should at some point lead to MQLs. But finding a way, Mike, to, I think, measure KPIs that are very meaningful and they show real progress, but they're not necessarily deep in the funnel and MQLs or even turning into revenue. I think that's important.
So you hold an agency accountable, but you're also comfortable with KPIs that are earlier... That warrant and that reward the work that an agency does that may not necessarily lead to revenue yet. And at some points of course, when an agency gets engaged with you and they're with you longer, let's say a half year to a year, then you do expect them to sign up for things like sales qualified leads and opportunities and wins and revenue, et cetera.
Yeah, absolutely. I think it's easier to come up with KPIs at that point as well or key results because you've built that foundation. Once you've gone through everything for six months, you get a pretty good understanding of what channels work well and which don't and which to double down on and which programs might need as much attention from that perspective as well.
So another really big question. It's often top of mind when we talk to people is: how much is realistic? How much should I expect to spend if I've not invested in marketing before and I'm starting from ground zero? Oftentimes you're not starting completely from ground zero. You have some things that can be leveraged. But a lot of times, there's a lot of work to be done. If you're starting from a place where you've had a lot of product-led growth or referral-based growth. You've built a great product. You've gotten a lot of customers off of referrals or you've found a good channel to sell into, how much should people expect to spend on marketing in general? Not just on an agency, but what's a realistic spend number for a small B2B SaaS company... One to 5 million, when they're just getting off the ground? Is it a certain percentage of the budget or is there some kind of patterns that you look at there?
Yeah, we have a couple of templates on our website that do what you just mentioned. Percentage of new revenue or sometimes it's a function of the maturity of your product. How far you are… product market fit, right? Do you need to spend a lot of money or resources, time on brand awareness for just optimizing your funnel? And all those... I think, tools, are very good to get you started. But what I think trumps all of that is that you want to be able to do things really, really well. Don't do things half.
So marketing is such a broad discipline. There's probably a list of 15 things that you can come up with that are helpful to drive growth for an early stage software company. From starting with content marketing, to investing maybe in paid search, improving your website, building great ads for pay-per-click marketing. Maybe investing in your pitch, your sales deck. All these things could be very helpful. And it's very hard to say that there's a certain mix of those things that is always needed. We have a playbook. We have our own approach at Kalungi that says, "If you do all of these things, you need to do them at least in the right sequence.” Don't start building your sales material, sales deck unless your branding and you're messaging, et cetera is very well developed and because otherwise she will be redoing that. And that's not a good use of resources, of course.
But what we found is that out of all those things you can do, the first thing you want to make sure of is that you do to things that you can sustain. Don't invest a lot of money in a webinar series, for example, in launching a webinar program, if you cannot sustain it. If you do a lot of work and you launch two, three great webinars, but you haven't planned out number four and number five and number six or you don't have the resource to do so, then it's better not to do it because the impact effect might even be negative because these things take time to get going.
That's, by the way, true for a lot of things in marketing. That you will have to be okay with a little bit of experimentation early. You'll learn, you'll optimize, and that's when you will start reaping the fruit. I think, it's good to look at, "Hey, 6% of my ARR should be set aside for marketing". You can do that, but then it's not optional to think about which things do I want to do and can I do well? And I'm not going to do these other things.
There are also things in marketing that you should only do if the other parts of your business can keep up. If you organize events, for example, but you don't have sales capacity to participate at the event booth or in an online event. Or you're starting to invest in a certain type of campaign, but you don't have time to do the follow-up or you don’t have time to learn from the experiments you're running, then of course, don't do those.
And then to get super concrete, to answer your question in a little bit of a different way, we have a number. It's typically about $50,000 a month that allows most B2B SaaS companies between, let's say a million in revenue and about 10 million in revenue, to have a good, solid functioning marketing department to drive the right level of growth in all the, let's call it, belt and suspender areas, right?
You need a good website. You need good content marketing. You need some form of paid search. You need to optimize your funnel. You need to set up your marketing automation correctly. So to do all those things correctly and to have a little bit of money to spend on media and to do a little bit of experimentation and constantly optimize your demand gen channels. If you set aside about $50,000 a month, $600,000 a year, that is a good ballpark figure to build your first marketing organization. Which then also leads to... If you haven't reached a couple of million in ARR yet, it's hard to actually find enough capital to invest that type of money. That's why you either do that when you get a growth capital injection or when you’ve started to become profitable and you can make a choice to invest it back into the business.
One other thought when I mentioned that number $50,000 a month, it's actually very specific. It's about $10,000 that we typically see is the most a small software company should be spending on media. Discretionary spend, whether it's pay-per-click marketing or a sponsorship or sponsored content or anything that's buying your way into people's attention span through any form of media. And we're not saying that you should spend that early on. You should only spend money on those things when you have great landing pages, great ability to understand the analytics and what's happening with the content, how are people interacting with it, so you can learn from that and improve, et cetera. But at most, I think $10,000 a month is the largest that we've seen small software companies spend on that.
The other 40,000 is mostly spent on the team. There's a little bit of money there. A couple thousand dollars that you use for tools, for your marketing infrastructure, HubSpot subscriptions, other tools maybe. And then the rest is to basically pay the team. And a team it's typically about 10 people in different skill areas, but they're all part-time right? Because you don't need a full time designer. You don't need a full-time copywriter. You don't need a full-time product manager.
So you either hire two, three full-time employees as your first marketing team. And you hope that they have all these skills. You need 10, 15 different skills areas combined into three people. And that happens when you hire really good, what's called T-shaped marketers that are able to do both HubSpot development and they are good maybe WordPress experts and they also can write good English copy. You find people who... With about two or three people, you can build your full marketing function. Or you do something like what you get with Kalungi. You get a team of about 10 people that are all experts in these areas, but your designer will only work on a couple of customers at the same time. So they will not be full-time.
Right.
That gets to that $50,000 a month.
And that's it for today's episode. But on the topic of budgets, if you're interested in getting a rough, all up number for your marketing function, we do have a budget estimator and template you can use to build your own budget on our website. You can find it at kalungi.com/budget.
And as for the new request I mentioned earlier in the episode, we are looking for a couple of business to business software startups to help us test the calculations for our new calculator. The outcome of the new calculator balances quite a few situational variables to deliver an output, including things like your product maturity, your churn rate, average contract value, how much funding you have, number of referenceable accounts you have, your growth targets, how fast you want to achieve those growth targets, and then also the maturity of your market, and how much foundation you've already built. So it's a bit more sophisticated.
If you're interested in helping us by providing some test inputs from your own B2B SaaS company, let me know. I'd love to hear from you. It's not quite ready yet, but I would love to have a few people on deck to help us pressure test it when it is. So if you think you're a good fit, shoot me an email at mike@kalungi.com and I'm looking forward to hearing from you. And as always, thank you so much for choosing to spend your time with us. We'll see you really soon.