Your marketing team size. What’s right?

Every marketing leader is faced with this question. One of my stops was created out of a merger of three Series A sized companies and perhaps because of the merger, the marketing team had seven folks quite quickly. Our investors had a number of companies our size with smaller marketing teams, and rightfully so, asked these questions: Why is seven a good number? Can you do it with less? Do you need more? 

The age-old question of the size of the marketing team needed has been tackled in different ways. But, it’s not even the right question. Marketers know the real question is “How big should the Marketing budget be INCLUDING people?” 

The goals matter

Where are we on the journey? Are we just building a brand for the first time? Are we in an established category or a new category? These questions and more will dictate the makeup and size of the team.

The revenue, profit calculation

For most of my career, it was some factor of the revenue and/or profitability. Or was it? I’ve been in a pre-revenue company with a team of four marketers, and a $300MM revenue company that was profitable with a team of thirteen. I’ve also been in two e-commerce companies that at their peaks were $40MM and $60MM in revenue, and both were profitable. My marketing teams had four people in both cases. 

A lot of the smarter minds are surveying what’s typical. SiriusDecisions presented some data at a conference a while back suggesting that the marketing spending should look like the following:

I remember seeing this when I was at my $300 million business and thinking, according to this chart, I should have at least $6MM to spend. But, that company was PE-backed, and PEs are often looking for an EBITDA multiple and they weren’t interested in spending more with the promise that it would lead to even more profit. 

But the PE firm wasn’t necessarily wrong. They wanted me to prove that spending more would lead to more revenue. They were looking for diminishing marginal returns (cue my economics degree). 

The competitive calculation:

Okay, this one is usually easy on the people side. Simply dissect what your competition is doing and make a comparison. This may not work if you are in a new nascent category, or if you are the leader. Plus, for larger companies, it’s not that easy to determine the cost structure. Sure, you can count up people at a company on LinkedIn, but you’re still missing the programs data. 

I would categorize competitive data on Marketing staff sizes as barely interesting. I’ve yet to see investors say “You need to add marketing staff because your Competitor X seems to have more”. As marketers, we all have to suffer the comments like “Competitor X has billboards and buses, and that’s what we need”. Or worse, “Competitor Y is winning market share and they have no to little marketing”. First, you need to decide if competitors are the key focus. In most of my positions, we are changing the category, so the competitive data is not as compelling.  

What’s the split of marketing programs to people? 

This one I learned from listening to Donna Wells, who was the founding CMO at Mint, years ago. Most startups had small marketing teams at the time, and for her size startup, they had a decent sized team. As I recall, she had a lot more tied up in people than programs. They didn’t have a big programs events budget to impact the ratio. But, instead of running a ton of advertising or media, she hired people to write about personal finance. She believed that content and community were going to be key. I’ve followed this thought leadership play ever since.  

Typically my ideal ratio of people to programs is 1:1, but as you scale and the business gets larger it can shift from 1:1 to 1:2. Of course, the business model will shape this as well. 

So, what’s the answer?

Now that we’ve got a target ratio in mind, how do we figure out what to do about both programs and people? The SiriusDecisions framework at least puts some guardrails around it, and I’ve come to push the CAC/ARR=1 approach to guide marketing spending. By the way, this is challenging also. Ideally, we are using the CAC/ARR Margin which makes this even harder to make the investment. We have to use not just the marketing costs, but the sales costs which are substantially higher than the figures in the table above. In my history, the cost of sales to a new acquisition is usually 3-4x the marketing spend. 

I look at org charts of “big brothers and sisters” for help. These are the labels I give to SaaS companies that we don’t compete with that have ACVs and ICPs that look close to ours. Finding a “peer” that is 2x, 3x, 4x the revenue, can provide insights as to how to shape your team as you move up the curve. Plus, peers will happily take you along on their journey and share the mistakes they make along the way. 

But, I'll paraphrase from someone who led marketing before me. "I don’t have a playbook, but I do have plays." The answer to the marketing budget size question is that it depends. As a CMO, you need to understand the P&L, the financial growth model, and the runway. 

The team at Convertiv worked on a marketing budget calculator that allows the user to play with various inputs to determine the appropriate spending to meet their growth goals. For an early-stage company looking to make that leap from a $1MM in ARR to $5MM in ARR, the calculator suggests a marketing spend of $1.7MM with the breakdown being $673K, $168K and $841K for people, tech stack and programs, respectively. This assumes marketing is 34% of sales & marketing combined spend. 

Calculators are not perfect, but this provides some good parameters to make sure you keep your inputs in line. Too many companies fail because they overinvest/underinvest in marketing or marketing and sales combined. Some have too much invested on the sales side. 

In the end, there is no single right answer, but you should use financial discipline and models to set goals and an approach. 

Hat tip to Stephanie Cox who helped me think through this article.