{"id":107,"date":"2024-12-03T10:00:23","date_gmt":"2024-12-03T10:00:23","guid":{"rendered":"https:\/\/evan-luke.com\/?p=107"},"modified":"2025-01-30T18:20:25","modified_gmt":"2025-01-30T18:20:25","slug":"budget-season-2025-has-the-b2b-saas-renaissance-arrived","status":"publish","type":"post","link":"https:\/\/saasygtm.com\/blog\/budget-season-2025-has-the-b2b-saas-renaissance-arrived\/","title":{"rendered":"Budget Season 2025: Has the B2B SaaS Renaissance Arrived?"},"content":{"rendered":"\n

Ahhh, American Thanksgiving has come and gone. Yes, I am calling it American <\/em>Thanksgiving. I am Canadian after all. Not ideal, I realize, but try not to hold it against me, will ya?<\/p>\n\n\n\n

We have arrived at the inflection point of the year in which the temperature in the northern hemisphere starts to really drop off, the crunchy leaves of Fall turn to snow, and your company\u2019s H2 performance is as good as locked in.<\/p>\n\n\n\n

If you\u2019re close to the goal and running a hail mary operation, good luck, but in another two weeks or so we\u2019ll all be getting into a sea of automated OOO replies. Oof, sorry for the painful reminder. As a little consolation, you are not alone. Pavilion\u2019s latest Pulse survey<\/a> had 60% of revenue leaders reporting that they missed their targets in Q3, roughly unchanged from Q2.<\/p>\n\n\n\n

If you are fortunate enough to feel secure about your performance, and your role, into H1 2025, congratulations! You made it through another year of post-apocalyptic SaaS h-e-double hockeysticks. Whether you negotiated a reasonable 2024 number successfully, did an amazing job of finding the way through tough times, or had some plain old dumb luck, well done<\/em>. Enjoy your gravy this year, you earned it.<\/p>\n\n\n\n

The Big Question<\/h3>\n\n\n\n

If you haven\u2019t already, you are about to sit down with your peers for one last quarterly session before breaking for Christmas to review 2024, hopefully not sweating too many bullets through that fun chat. Then, usually after a little post-fireworks hatchet burying session with your peers over dinner, you will return to lay out the game plan for 2025. Oh, and don\u2019t forget about presenting all your work to the board. Dave Kellog<\/a> did a great blog post<\/a> to remind us all of what\u2019s most important with the latter.<\/p>\n\n\n\n

From my conversations with others lately there is a growing, though largely publicly unspoken, question being pondered. Are we finally <\/em>out of the weeds? Is 2025 going to be the year we see reacceleration in the market? Do we keep playing it safe? Is it time to start making bigger bets? These are the questions I suspect that will either inform or take place in those board rooms.<\/p>\n\n\n\n

It has now been about two and a half years since we started running into a correction, so at this stage you are not premature to ponder. However, I might suggest you are not asking the right questions. A better question is where to set the goalposts for normality. You are free to wish and dream, but you are probably better off spending the time becoming very confident in and comfortable with what normal looks like. By doing this, you will recombobulate yourself from the madness and make better strategic decisions. Allow me to explain\u2026<\/p>\n\n\n\n

SaaSenomics: Valuations, Growth & Profitability<\/h3>\n\n\n\n

One of the biggest pieces of criticism towards SaaS companies has been inflated valuations. The argument goes that many were based more on wild speculative investment fuelled by low interest rates and COVID-mania than validity of underlying business models. I won\u2019t get into that, because frankly I don\u2019t think it gets a lot of pushback. The point here is that if sanity comes back to valuations, we can theoretically get back to a place of comfort with risk and investment in higher growth. Emphasizing profitability often produces challenges for marketers who can become hesitant to make big bets on initiatives that produce big, long-term results (and are usually more challenging to measure).<\/p>\n\n\n\n

So where are we at now on valuations? Based on SaaS Capital\u2019s<\/a> research, private SaaS valuation multiples are running under the years immediately preceding 2020<\/a>, closer to the years from 2016 through 2017. That\u2019s probably what most would consider to be a sign we are at, or darn close to, normal. That\u2019s a good sign, right?<\/p>\n\n\n\n

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You could be forgiven if things still don\u2019t quite feel like normal. That\u2019s not why you\u2019re reading this, and there is a good reason you feel that way.<\/p>\n<\/blockquote>\n\n\n\n

Joint research from Maxio<\/a> and SaaS Capital<\/a> suggests that YoY growth rates have not recovered to pre-COVID levels. In fact, they\u2019re noticeably lower<\/a>. We\u2019re talking more like 2010 to 2011 levels here. That\u2019s not the whole story, either. YoY profit growth has gone the exact opposite direction<\/a>. Again, not by a small margin. We are talking at the highest level in more than two decades.<\/p>\n\n\n\n

So how have companies gone about increasing profitability with growth at historical lows? There are a variety of ways, but the readers of this blog will be intimately familiar with the biggest: layoffs<\/a>. If you are still full-time employed leading a department at a SaaS company you have more than likely had to go through at least one of these with your team. You may have even been on the receiving end.<\/p>\n\n\n\n

You could read some of the market dynamics to be positive and suggest that we can expect to see more of us getting gassed back up by venture capital to go for a cruise in the left lane of the interstate (apologies to the Europeans). It hasn\u2019t been easy, we all know, but rest assured it\u2019s going to be better, right? We are headed in that direction, but there are some dynamics to keep in mind.<\/p>\n\n\n\n

SaaSenomics: Capital Inflows<\/h3>\n\n\n\n

Donald Trump just won a second mandate as President of the United States. That\u2019s about as far as anyone can take statement of fact, because most of us don\u2019t know what it actually means for actual policy principles. One of the things that it probably <\/em>means is that there will be pressure to lower interest rates. Though the chair of the federal reserve has not exactly been signaling future action will be based on pressure<\/a>. Moreover, as of late it is sounding as though they will maintain a cautious approach<\/a>. This will be a wildcard for SaaS growth, because funding is most likely to flow freely at lower rates.<\/p>\n\n\n\n

So, of the capital that is flowing, where is it going? Most in 2024 went to larger, later stage companies<\/a>, and an absolute mountain of it went to artificial intelligence1<\/a><\/sup> 2<\/a><\/sup>. The first segment could be construed as higher risk aversion, and an indicator that big pockets aren’t feeling frisky yet. Conversely, the second segment feels like a feeding frenzy and will not come as a surprise to anyone. AI capabilities facilitate cost reduction through making existing headcount more efficient. This is the second dynamic, and we get into a chicken or the egg question.<\/p>\n\n\n\n

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Is the emphasis on efficiency driving investment? Or is the investment driving the emphasis on efficiency? <\/p>\n<\/blockquote>\n\n\n\n

What does this mean for marketing departments? I am skipping over a few steps of assessing your particular situation with regards to key investor metrics and unit economics, and those are pieces of the puzzle for you to factor in. I\u2019m assuming that you\u2019ve got a clear sense of where you want to go in the market and what those buyers want to see in your product. I am also assuming you have got R&D and product on board with you. These are big assumptions.<\/p>\n\n\n\n

Applying Market Dynamics<\/h3>\n\n\n\n

So what should you do with your budget this year? The first piece is always looking at the overall number. Is it still reasonable? The answer is going to depend on how 2024 went and what you need to do in 2025, so you\u2019ll need to take that into account. That said, even if you did well and you were thinking a near-term jolt of cash to deploy a larger set of resources is potentially coming back into play, at this stage you would be wise to reconsider. The funding environment is improved, but it is not going to be a slam dunk if you are not in the key segments eating up all the cash.<\/p>\n\n\n\n

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Frankly, if you walk away from annual planning with your overall budget intact and a reasonable growth target for 2025, you can probably consider yourself to be doing well.<\/p>\n<\/blockquote>\n\n\n\n

It\u2019s also wise to get a sense of how much your company is looking to grow in relation to the new norm. The overall average rate in the past year or so for private companies seems to vary depending on the data you look at. A range of 15-30% year over year is probably fair. No matter which data source we use, we see a significant drop in the post-COVID years of 2022 to present. Of course this can vary based on business size, target market, go-to-market motion, pricing strategy, and more, so it\u2019s a good idea to seek benchmarks most relevant to your situation<\/a>.<\/p>\n\n\n\n

I would also point to some recent research<\/a> ICONIQ Capital<\/a> put out on marketing budgets and productivity. There is a section aggregating data on marketing costs as a percentage of revenue. If you are not already you would be wise to think about how much you\u2019re spending for every dollar of net new ARR. As Dave Kellogg reminds us<\/a>, your board will likely want to look at it from different angles beyond just as a percentage of overall ARR.<\/p>\n\n\n\n

David Spitz\u2019s LinkedIn profile<\/a> is a great place to explore benchmarks on what he calls \u201cGTM efficiency\u201d. It\u2019s worth noting he uses public companies, but nonetheless it\u2019s a yard stick. The median is $2.50 spent per $1 earned<\/a>, and as he points out, that\u2019s high. If you\u2019re in a similar boat, and particularly if your CAC ratio and CAC payback period isn\u2019t looking good, you will probably want to start thinking about what a 20-30% departmental cut might look like.<\/p>\n\n\n\n

You will also want to check out the section of ICONIQ capital\u2019s report on percentage of outsourcing of marketing responsibilities by function. The key point here is communications and content marketing functions are at least partially being outsourced<\/a> in well over half the businesses surveyed. If you have not already sorted out how to generate content more scalably with artificial intelligence, or minimally engaged an agency that can do so on your behalf, it is time to start. You are spending more and going slower than you could be. If your concern is about brand integrity in messaging, that is being addressed by existing technology<\/a>.<\/p>\n\n\n\n

Changing the Channel(s)<\/h3>\n\n\n\n

When it comes to budgetary line items the seismic shift taking place is money invested in search advertising being redeployed to social media advertising<\/a>, and that echoes what I have personally witnessed taking place. You could attribute that to increased competition in the form of large language models, some very public questioning<\/a> of the return on investment provided by paid search, or perhaps the growing desire for enhanced targeting capabilities<\/a> (which social media advertising is more likely to provide). Either way, if you are still relying on search engine marketing to drive outcomes, it is a good time to reevaluate. I will cover the emerging concept of \u201cABM 2.0\u201d or \u201cmicro-campaigns\u201d and the accompanying suite of products in more depth in a future post.<\/p>\n\n\n\n

The other shift that\u2019s worth noting is money from events shifting towards partner marketing<\/a>. This one is a little harder to gauge the underlying reasons behind. If anything, I suspect most of us expected a major resurgence in events post-COVID. Inevitably the producers behind these events took a hit during that era, and part of the dynamic could be increased costs to offset losses they\u2019re still recovering from. Plus, on the buyer side the increased focus on profitability and comparably smaller marketing budgets could be combining to create a double whammy in which tradeshows don\u2019t present the same expected value. I have personally observed an aggregate shift towards smaller, cheaper, more targeted events over tradeshows similar to what I referenced about in search and social advertising. <\/p>\n\n\n\n

The partnership angle is perhaps the most interesting dynamic. Could it be viewed as a favorable method to grow audiences without spending too much or \u201cpraying and spraying\u201d messaging everywhere? Could it be a mechanism for warm introductions to specific sets of high expected value target accounts? Perhaps channel strategies like value added resellers are encompassed in \u201cpartnerships\u201d here and being utilized to compliment increasingly popular usage based pricing models. This is one to watch and ponder as you set spend.<\/p>\n\n\n\n

I will go farther down the path of budget building to account various business nuances and meet pipeline and growth objectives another day, but for now I want to lay the overarching point out. What you are witnessing right now is a new state of normal, and though there are favorable conditions in play for the overall software market to improve, in the near future you are better off assuming you will not see dramatic positive changes for the better.<\/p>\n\n\n\n

A Heart to Heart<\/h3>\n\n\n\n

I suspect that a lot of marketers want to hear that it makes sense to reinvest in growing headcount. Some of them may well be harnessing ChatGPT<\/a>, Copy.ai<\/a>, Jasper<\/a>, outsourcing work to agencies or freelancers, or using other tricks to keep things efficient as it is. I am speaking of a more emotional desire. Some middle managers and individual contributors may wish to have their old CMO that got walked out the door or intentionally broke up with the CEO back. They at least want a senior resource that understands them as being worth more than a mechanism to facilitate the generation and conversion of sales pipeline. Similarly, senior marketers that still remain may wish to have those team members they loved so much but couldn\u2019t afford to keep back on the roster.<\/p>\n\n\n\n

I would love to present this through the lens of something that is mutually beneficial to businesses and the unemployed, or a feel good story that the good times are starting to come back. But unfortunately that\u2019s not the right way to assess, nor is it how businesses operate. Above all, the last few years as tough as they have been are about becoming reliable stewards of capital. The reality of the situation for the majority<\/a> is that the market is not back at a point where being aggressive with absorbing headcount makes sense again. We have made some progress, yes, but there will likely continue to be apprehension about absorbing people costs for the sake of maintaining profitability and weathering any forthcoming anomalies.<\/p>\n\n\n\n

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If your view of hiring in this market <\/em>is that of a status symbol, a badge of honor that you\u2019re doing better than those around you, it is time to put that aside. For most marketers, your next job will come from a combination of networking and articulating how you found a way to create demand, generate pipeline, and contribute to growing the business efficiently and predictably.<\/p>\n<\/blockquote>\n\n\n\n

I know, I know, I am not exactly known for my contagious, unrelenting optimism. You will either love or hate me for that. I am just shooting straight. Maybe check we\u2019re at again after H1 2025. Keep an eye on interest rates and capital inflows. I hope I am wrong.<\/p>\n\n\n\n

Don\u2019t lose all hope, though. Chris Walker<\/a> claims that the good times are never coming back. He has had some great observational takes on the industry over the years, and I think he\u2019s a very healthy voice for us, but on this point I disagree. History repeats itself. Most of the Financial industry is based on institutionalizing cycles of greed and stupidity<\/a>. We will find the top again. This time around you will be more prepared for it.<\/p>\n\n\n

  1. \u21a9\ufe0e<\/a><\/li>
  2. \u21a9\ufe0e<\/a><\/li><\/ol>\n\n\nFigure 1\n