Sales and Marketing Expenses
Sales and marketing — two powerhouse functions for SaaS startups and businesses. Both are crucial to the success of a business. Without marketing, no one will know about your product. Without sales, your startup may be at risk of failing.
Tracking and measuring budgets in sales and marketing doesn’t just mean commissions and campaigns. Every dollar spent on salaries, advertising, sponsorships and more should be included within sales and marketing expenses. Why? These metrics are the secret sauce to measuring several crucial metrics for your business.
Read on to find out what you should be including in your sales and marketing expenses, how to effectively measure, and what can be done to optimize these for success over time.
What Are Sales & Marketing Expenses?
Sales and marketing expenses are the internal and external expenses incurred that are directly and indirectly related to selling and marketing a product or service.
These expenses include the salaries of all sales and marketing employees, the dollars spent on marketing campaigns (sponsorships, trade shows, display ads, etc.), and any platforms or tools to support marketing and sales activities.
Some organizations and industries lump sales expenses into the overall general and administrative expenses as Selling, General and Administrative (SG&A expenses).
While this may be beneficial for some industries, understanding and tracking sales and marketing expenses as separate line items allows SaaS companies to measure and track Customer Acquisition Cost (CAC), CAC payback, LTV and more.
Separate out your sales and marketing expenses from the start and your future financial projections will thank you.
Sales & Marketing Expense Ratio
To understand the performance of sales and marketing, it’s important to compare it to revenue. Many use the sales and marketing expense ratio to make comparisons and determine success metrics for their business.
Sales and Marketing Expense Ratio = Sales & Marketing Expenses / Revenue
The resulting number would be displayed as a percentage of revenue.
Sales And Marketing Expenses List
Quality talent will likely be the largest budgetary item affecting sales and marketing expenses within an organization. However, it shouldn’t be the only line item. When calculating sales and marketing expenses, you should consider the following:
- Salaries of sales and marketing employees
- Sales commissions
- Trade show costs (and the travel expenses incurred)
- Advertising costs (direct mail, PPC, purchased lists, display ads, social media, etc.)
- Sales and marketing automation tools
- Design (website, print advertising, and more)
- Contractors and consultants (advertising or PR agencies, etc.)
Why Sales And Marketing Expenses Are Important
There is a direct link between sales and revenue, and sales resources—while initially expensive—can ultimately impact your bottom line. Companies that invest time and money into R&D but not sales will not reap the same benefits as companies that invest in both the production and selling of their product or service.
In the current landscape, the same is true for marketing. Gone are the days when effective marketing meant taking out a billboard ad and watching the phones light up.
Marketing plays a key role in telling your brand story and explaining the key value propositions of your product to woo your audiences. In short, without effective marketing and sales tactics, a company may go unnoticed.
Yes, you probably already knew that sales and marketing are incredibly important for your business.
But what many are surprised to find is that tracking and analyzing these expenses are just as paramount to the success of your business.
Know Who (And When) to Hire
You know that quality sales and marketing talent and resources will only pay out in dividends. But if you’re not accurately tracking your expenses, do you know if you can afford to hire a new Account Executive or Marketing Manager?
A clear understanding of expenses can help to fuel current and future hiring plans.
Build a More Accurate Financial Forecast
Your sales and marketing expenses should be incorporated into forecasting, allowing you to build out accurate financial models and projections.
In the early stages of your business, every dollar counts. You should have a clear line of sight into every expense to know what may need to be put on the chopping block to extend your runway. Hint — this goes for all expenses, not just sales and marketing!
Provide Context to Other Important Metrics
Tracking sales and marketing from day one will also come in handy when measuring additional acquisition metrics and operating expenses, including:
- The SaaS Magic Number
- Customer Acquisition Cost (CAC)
- CAC Payback
- CAC Ratios
You’ll find you’ll be referencing your sales and marketing expenses far more than you would have expected!
How to Optimize Your Sales And Marketing Expenses
Unfortunately, there is no silver bullet to optimizing sales and marketing expenses. The expenses that directly affect your company’s bottom line can vary from business to business and industry to industry.
Understanding the performance and ROI of marketing campaigns can help to determine where to invest resources in the future.
For example, if you’ve spent hundreds of thousands of dollars on tradeshows but have only received 3-4 leads per show, then you may want to consider re-allocating those dollars to marketing campaigns that have a more effective CPL (cost per lead).
There are also low-cost content marketing options for early-stage startups to help get their name out there, like social media and Search Engine Optimization (SEO).
In tandem, you should understand the amount of sales staff it takes to effectively sell your product. If your sales team is too small, it’ll cause a buildup and potential lost customers. But if your team is too big, it’ll result in wasted costs and resources.
It’s important to keep in mind that more money spent on marketing and sales doesn’t guarantee more revenue, but can have a major impact if done effectively.
This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Please consult your advisor with any questions.