Archive for the Sales & Marketing Expenses Category

Sales and Marketing: How Much To Spend?

Posted in Enterprise Software Sales, Enterprise Software Startup Sales, Sales & Marketing Expenses on August 1, 2010 by Shankar Saikia

No matter how functionally rich and technically advanced your software is, you have to expend resources (i.e., time and money) to get customers to buy your product. Most entrepreneurs, especially founders with primarily an engineering background, do not seem to understand this aspect of starting and operating a business. I have heard of only one tech company that does not have a sales force or has very few salespeople (Atlassian).

Here is some data on the what various publicly traded software-as-a-service (SAAS) companies spend on sales and marketing as a percentage of total revenue (source: 10-K reports at www.sec.gov) :

Salesforce.com 47 % ($605 million out of 2009 revenue of $1.3 billion)
Netsuite 46% ($76 million out of 2009 revenue of $166 million)
Successfactors 52% ($80 million out of 2009 revenue of $153 million)

As you can see each of these companies spends over 45% of its annual revenue on sales and marketing. If you are an entrepreneur you should budget at least that much for sales and marketing (perhaps  more on marketing in the beginning so that you can build awareness).

Experts cite many credible reasons for the success of one tech company over another. One reason is the concept of network effects and increasing returns to scale – for example, a platform that enables others to build applications for it (e.g., Microsoft Windows, Apple’s iPhone App Store) – the greater the number of apps, the greater the value of the platform.¬† Yet another reason for the success of a tech company, especially an enteprise software company, is effective sales and marketing. As I said in the beginning of this writeup, you cannot win with just a great product.