Sales and Marketing (S&M) expenses consist of costs related to growth activities. The goal of the SaaS business model is to grow quickly and pay off initial spending to acquire a customer. Compared to traditional companies, SaaS companies spend more on sales and marketing because of the pressure to grow recurring revenues.
Since sales and marketing are such an essential part of the SaaS business plan - it’s common for SaaS companies to look closely at S&M expenses as a percentage of revenue to understand their revenue investment in this department. This metric also allows investors to benchmark their S&M expenses against other companies and set targets to keep their costs under control.
Want to learn more about Sales & Marketing expenses as a percentage of revenue? Keep reading for the full scoop and benchmarks that are common in SaaS.
What are Sales and marketing expenses as a percentage of revenue?
This metric shows the percentage of revenue that is spent on Sales & Marketing during a given time period. The metric is a valuable measure of how much is being spent on growth-related activities.
Most SaaS companies will spend more than 50% of their revenue on S&M related expenses, but in early-stage VC backed startups, with ARR of less than $10 million, the average is 95%.
What to include in Sales & marketing expenses?
S&M is one of the four fundamental expense categories for a SaaS company. The other three are Cost of Goods Sold, Research and Development, and General and Administrative.
Accounts that are typically mapped to the S&M expense category are:
- Sales expenses
- Sales compensation
- Content and brand marketing
- Customer success
- Advertising expenses
- Public Relations
How to calculate Sales & Marketing expenses as a percentage of revenue?
It is calculated by dividing Sales & Marketing expenses by total revenue earned by the company.