What Percent of Revenue Should You Spend on Sales and Marketing?

Can you tell us about yourself and the inspiration behind Directive? 

0:13-1:29 Garrett Mehrguth: I started Directive because I wanted to get into consulting. I felt I could see and solve problems, but I wasn’t able to get hired by any consulting firms. So, I decided to start my own business. I began by offering digital marketing support to small business owners, focusing on local SEO. I immersed myself in learning from industry resources like Moz, Search Engine Land, and Search Engine Journal, and attended conferences to gain knowledge. This allowed me to improve website rankings and increase traffic for my clients. My business grew from a mix of what I enjoyed, understanding what clients needed, and delivering more value than what I charged.

Can you describe the relationship between the sales and marketing teams at Directive? How do both teams collaborate on a day-to-day basis? 

1:40- 2:12 Garrett Mehrguth: Our sales and marketing teams are highly integrated within our growth organization. They share KPIs and an overall budget, working together closely. We track leading KPIs like the number of proposals sent and lagging KPIs such as the bookings and revenue generated from those proposals.

When you're working with a client on forecasting their marketing investment, what are the most important questions you need them to answer to allocate effectively?

2:24-3:48 Garrett Mehrguth: We focus on business metrics like gross margin, customer retention, and average monthly spend to assess efficiency. By calculating the lifetime value to customer acquisition cost ratio (LTV), we can evaluate spending, resource allocation, and identify the most profitable strategies. Unlike some marketers who forecast in isolation, we hold ourselves accountable to revenue and the costs involved, helping us make more informed and effective decisions.

How do you see your clients deciding to invest in sales versus marketing, or short-term versus long-term initiatives? Do clients see success in one versus another?

4:07 - 6:17 Garrett Mehrguth: I don’t usually get involved in sales investment since I focus on areas other than sales consulting. However, I believe that hiring more salespeople doesn't necessarily lead to increased revenue. Instead, I view sales as a way to capture the demand generated by marketing. My approach involves using sales reps to handle the opportunities that marketing creates, rather than relying on them to generate new leads through outbound methods, which are less effective. We scale our sales team based on the internal calls we have each month, ensuring that reps have manageable workloads and can focus on delivering personalized, high-quality pitches. This helps maintain high closing rates and pipeline efficiency.

Can you share any strategies or frameworks you deploy to help clients track the effectiveness and ROI of sales and marketing expenditures?

6:31-7:57 Garrett Mehrguth: While complex attribution models are appealing, I find HubSpot’s default attribution quite effective. What’s crucial is maintaining data cleanliness and consistency through strong marketing and sales operations. Instead of focusing solely on absolute numbers, I prefer relative metrics, like the percentage of calls that progress to proposals or the rate of form fills that lead to attended intro calls. These metrics give a clearer picture of sales efficiency and how well we’re converting investment into results, adjusting for factors like budget changes.

In your experience, how do industry competition and market dynamics influence the percentage of revenue clients should allocate to sales and marketing?

8:10-10:51 Garrett Mehrguth: As Directive grew, I found that market factors had a bigger impact, limiting my control over pricing and costs. Deciding how much revenue to allocate to marketing depends on the company’s goals and the macroeconomic environment. For instance, if a business plans to sell in 24-36 months, it might cut capital expenditures and focus on increasing EBITDA. On the other hand, Directive initially aimed to minimize EBITDA to reinvest in R&D and market share. Current macroeconomic conditions, such as sector-specific slowdowns or changes in interest rates, also influence this decision. For example, the software sector faced challenges after the collapse of Silicon Valley Bank and rising interest rates, shifting focus from aggressive growth to more efficient growth. Thus, both the business stage and economic climate play crucial roles in determining marketing investment.

Can you share how you advise clients to adjust their sales and marketing budgets in times of economic uncertainty?

11:21-13:15 Garrett Mehrguth: When market conditions worsen and demand slows, it's tempting to cut sales and marketing expenses. However, I believe it's an ideal time for pricing innovation. For example, during a period of reduced marketing budgets, Directive didn’t simply cut costs but created a new offering tailored to budget-conscious clients. We introduced a startup package priced at $5,750 a month with no long-term contracts, which provided a range of services. This approach has been highly successful, improving customer satisfaction and retention, and becoming one of our fastest-growing business units. Instead of reacting fearfully to tough conditions, focus on understanding your audience and adapting your pricing and value proposition to stay relevant.

How has Directive disrupted the industry?

13:27-15:36 Garrett Mehrguth: Directive has disrupted the industry by aligning closely with the software business model, focusing on recurring revenue and tracking similar KPIs. We face the same challenges as software companies, like targeting the right clients and ensuring renewals and customer success. Our innovation stems from investing in marketing and R&D to develop effective campaigns and services. We then productize these innovations, creating strong onboarding and feedback systems. This approach leads to high customer satisfaction and goal achievement. For each new client, we set a challenging North Star metric, often achieving it 79% of the time, reflecting our deep commitment to meeting and exceeding client goals.

What else are you looking forward to this year?

15:51-17:56 Garrett Mehrguth: I'm excited about Directive’s new video offering. Although we've had video and programmatic services for years, our biggest innovation has been in creating demand and differentiating our clients. For B2B software companies, traditional methods like Google search and SEO often fall short because people don't search for new, innovative products that don't yet exist. Directive excels in LinkedIn and paid social advertising, and we’re now expanding into TV, adapting consumer-focused channels to boost awareness and demand for B2B software. This approach helps our clients grow their market share and take on competitors more effectively. I look forward to seeing how our enhanced offerings will further support software clients in creating demand.

Is there anything else you'd like to add?

18:08-18:58 Garrett Mehrguth: Whether you're a well-established software company or a startup, we have a marketing solution that fits your stage of growth. We take results seriously and our startup package, for example, is backed by top talent and high customer satisfaction, averaging 4.2 to 4.3 out of 5 across 30 accounts. Our dedicated team, whether working with established brands like Gong or newer startups, is committed to driving incremental bookings and helping you gain market share, with a strong focus on both results and customer experience.

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