In order to introduce you to Softletter, these expenditure ratios will open to all visitors to the site till March 19th, when they will available only to Softletter Premium and Partner Subscribers. To read the Research and Development, Revenue per Employee, and CEO compensation Benchmark 53 reports, please subscribe to Softletter.
Our Sales and Marketing, 2013 – 2014, The Softletter Benchmark 53, are all publicly-held companies and most of our basic business metrics are derived from documents these companies are legally required to provide to investors. When we believe circumstances warrant it, we do adjust these numbers to reflect financial reality.
We have completely revamped our Benchmark 50, now the Benchmark 53, to reflect the profound changes the software industry has undergone over the last several years. The profiled are now broken into eight segments that provide a representative overview of industry trends and performance.
Sales and marketing expenditures are always an interesting benchmark to analyzed and the numbers can reveal a great deal about both an industry category and the challenges facing a particular company. Before we dive in, it’s important to make a couple of key points. Publicly held companies, or companies planning on an IPO, typically spend more money on sales and marketing in an effort to satisfy the demands of their investors for the type of growth that drives up the firm’s stock price. For privately held firms, expenditures between 15% to 30% are far more the norm.
This ties to another point. Many companies as they grow trade profitability for profit. The goal of this strategy is to seize a dominant position in an industry and then cash in. A recent famous example of this is Facebook. In the “Social Network,” the movie about the company’s founding and rise to dominance, Mark Zuckerberg is seen deriding one of his co-founders for his efforts to sell web advertising on Facebook. But once Facebook had driven Friendster and MySpace into minor niches, the company immediately began to explore ways to monetize its massive user base, which it has done by converting your network into its network (remember, if you’re not paying for a product you are the product) and charging you to access it (and serving up ads). Saleforce, NetSuite, and other firms have followed similar strategies, though the path to monetization often differs.
On the other hand, a high S&M ratio for a company in an established market or niche is frequently a sign of stress. Competitive pressure, business model disruption, and bad management are often the reasons for S&M numbers to start to rise in excess of historic levels.
Another observation. Many Softletter readers often ask us how software companies allocate sales vs. marketing expenditures in this report. Public companies are not required to break out these classes of expenditures in their 10-Ks, but in on-premise markets, traditionally for every dollar spent on S&M, $.80 was spent on sales (personnel, management, and operations) for $.20 spent on marketing (advertising, email, PR, etc.). However, this ratio is starting to change. For example, in the case of Angie’s List, sale and marketing expenditure are approximately 55% sales, 45% marketing. We’re seeing this reapportionment grow in the SaaS and mobile markets as more money is spent on market education and demand generation as opposed to traditional feet on the street sales programs.
Some companies also play games in an attempt to disguise their sales and marketing spend. For example, Groupon has broken out marketing separately on their 10-K and lumped sales in with G&A! We’re not falling for that and have made an intelligent “adjustment” to their figures which we believe better reflects their true S&M ratio.
Sales and Marketing ratios for all 53 benchmark companies, as well as averages and medians are available to Softletter subscribers.
Sales and Marketing 2013—2014, The Softletter Benchmark 53, Executive Summary
|Company Categories||Software Company Sales and Marketing 2014 Ratios (Median)||Software Sales and Marketing 2013 Ratios (Median)|
|SaaS Sales and Marketing||51%||55%|
|SaaS B2B/C Verticals||34%||31%|