Sales and marketing aren’t just the ‘coloring in department’ as some business dinosaurs might believe. In the corporate world, they’re a necessity, and one can’t thrive without the other: marketing puts your product on the map, while sales are the coal in the figurative fire.
In 2024’s turbulent economic landscape, every cent counts. There are the sales and marketing essentials, like salaries and advertising that captures your audience’s attention. Toss in sponsorships, trade shows and social media blitzes, and you have a complex web of sales and marketing costs that can make or break your financial health.
We’re deep-diving into the world of sales and marketing expenses. The numbers of your business tell a story, and it’s only when you understand what the story is that you can make the right strategic decisions.
Let’s get into how you can turn sales and marketing expenses into a path for optimized spending and maximized success.
Table of Contents
What are Sales and Marketing Expenses?
Sales and marketing expenses are the direct and indirect costs incurred from activities aimed at driving revenue, from advertising and public relations to salesperson salaries and marketing automation tools.
These expenses capture every dime funneled into generating buzz and increasing sales. We’re talking about the whole nine yards: from the travel expenses incurred wooing clients at trade shows to the costs of a well-oiled digital marketing campaign that lights up your target audience’s social media feeds.
Let’s break it down. For sales, it’s the sum of the direct and indirect costs — think salaries for your salesforce, commissions, and any software that tracks customer relationships like Hubspot or Salesforce.
Marketing expenses cover a wide spectrum: advertising costs, salaries of your marketing team, search engine optimization (SEO) strategies, and public relations efforts that put your brand on the map, to name a few.
The two shouldn’t be viewed in isolation on an income statement: the relationship between the numbers and strategy is crucial. When a CMO plans out a new marketing campaign aimed at capturing greater market share, the CFO scrutinizes the costs and uses forecasting methods to ensure marketing spend stays in line.
Examples of Sales Expenses
Want to go after deals and build customer relationships? Then it’s inevitable you’ll need a sales team.
The base salaries plus commissions, bonuses, and other incentives form a significant chunk of the sales budget. SaaS start-ups should focus on a compensation plan that rewards performance but controls costs, like a lean salary base with attractive commission opportunities.
The tools and technologies that empower sales, like CRM software and sales automation systems, are another vital sales expense. These are non-negotiable investments that allow you to review sales performance metrics, streamline operations and improve efficiency, warranting up to 10-15% of the sales budget.
Travel expenses, while slimmed down in recent years due to virtual meetings, still play a part in keeping clients on board. Face-to-face interactions can seal the deal in ways digital communication cannot, justifying a strategic part of the budget.
Examples of Marketing Expenses
Marketing, focused on demand generation and building a brand, has its own expenses for founders to calculate.
Advertising costs, including digital marketing efforts, are typically the most visible marketing expenses. This can be anything from PPC campaigns, social media advertising, or content marketing. Given these are the lifeblood of any successful marketing strategy, they deserve the lion’s share of the budget — often between 20-30% for a growth-focused SaaS company.
Market research is another considerable spend. This behind-the-scenes work informs product development, competitive positioning, and marketing messaging. Savvy CMOs should earmark 5-10% of the marketing budget to ensure campaigns are insight-driven.
Trade shows and sponsorships might seem like relics of the pre-digital era, but these expenses can create invaluable in-person connections and lead to high-quality leads. Allocating around 10% of the marketing budget to these efforts can reap the rewards when strategically chosen.
Balancing these expenses against the expected ROI is the key to any strategic budget allocation for sales and marketing. It’s a delicate balance: over-invest, and you’re burning cash. Underspend, and you risk never getting off the ground.
Why Closely Tracking Sales & Marketing Expenses Is Important
Small businesses and start-ups need to optimize these expenses more than most. The cost of sales and customer acquisition cost (CAC) are benchmarks that can reveal a lot about a company’s health.
Optimize ROI
2023 was a rollercoaster ride for businesses. Those that have agile marketing strategies and budgets are the ones who survive. Tracking marketing expenses closely means marketing teams have accurate insights into where the budget is best spent.
It’s about ensuring that every advertising dollar contributes to a solid return on investment, and understanding how the strategy is impacting sales funnel metrics.
Forecast Strategically
For the CFO and sales team, detailed insights into sales expenses are essential. If a new sales technique isn’t working or a CRM tool isn’t being used to its full potential, the impact will show up on the company’s bottom line.
This attention to detail goes beyond simple expense tracking — it allows for predicting cash flow and adjusting sales tactics in real-time. Sales leaders can also better understand CAC and how much the company spends to get each new customer.
Justify Costs
With start-ups and small businesses, spending too much or too little in one area can be a costly mistake. As a result, operating expenses need to be meticulously evaluated against tangible outcomes.
With sales and marketing, it’s not always simple to articulate how PR drives sales or how a marketing campaign delivers new leads. But some questions to consider are: Are our marketing expenses leading to a sustainable increase in our customer base? Is there a direct line we can draw from our marketing spend to an uptick in market share?
By tracking these expenses with precision, these agile companies can set realistic benchmarks. This isn’t just about cutting costs but about spending smarter.
Allocate Budget
Getting granular with tracking sales and marketing expenses means a business can make better decisions in the coming years on how much to spend and where.
In an ideal situation, the sales and marketing budgets aren’t static figures. Instead, they’re responsive to market trends and customer feedback. It’s a balancing act which tracking expenses can help feed into so a company can react quickly to new situations instead of being committed to a budget that doesn’t work for either team.
How Much of Your Budget Should You Allocate to Sales & Marketing Expenses?
However, there are industry standards and benchmarks that can guide you when setting a budget that promotes sustainable growth and a competitive advantage.
A common practice is to allocate a percentage of revenue to sales and marketing expenses. For many businesses, especially within the SaaS sector and startup communities, this percentage can range between 15-30% of total revenue. Of this, another general guideline is to spend around 5-10% of revenue on digital advertising specifically.
Start-ups are about rapid growth and establishing a foothold in the market, so the emphasis is on brand building and getting customers on board.
For more established companies in less aggressive growth phases, this figure might sit between 5-15%. The focus might shift to working on existing customer relationships and increasing sales efficiency, needing a smaller, more focused budget.
Relevant Sales & Marketing Metrics
Sales and marketing teams have to navigate a mountain of data to determine which activities are working best. Understanding which metrics to track is pivotal to quantifying success and driving strategic decisions.
Conversion Rates
Conversion rates stand as one of the most telling indicators of sales effectiveness. Tracking how many leads turn into customers is a measure of how well sales tactics work and the quality of the leads generated by a marketing campaign.
Customer Acquisition Cost (CAC)
CAC measures the total cost of onboarding a new customer from start to finish. It’s a window into return on investment for these efforts and understanding how sustainable existing growth strategies are.
Brand Awareness and Equity
Brand awareness is vital for understanding a company’s strength and position in the marketplace. But how do you quantify something that is intangible? Metrics for success could include successful PR campaigns, social media conversions and content marketing stats.
Pipeline and Revenue
Sales expenses and marketing expenses as a percentage of revenue is an indicator of how effectively money is being spent in these areas. This metric not only helps in benchmarking against industry norms, but also guides the balancing act between aggressive growth and profitability.
How Mosaic Can Help Your Company Manage Sales and Marketing Expenses
Getting to grips with sales and marketing expenses can be a formidable challenge for any start-up. With Mosaic, tracking everything you need and gleaning actionable insights becomes the standard.
Here’s how Mosaic can help transform how your company handles these costs.
Access Real-Time Tracking Through Seamless Integration
Mosaic serves as the central hub for all of your financial data, bringing together your tech stack under one roof. The platform has native integration for leading ERPs and accounting systems, CRMs and billing platforms like Stripe, Xero, Salesforce and more.
Gain Visibility Into Metrics that Matter
Banish spreadsheets to the annals of history. Our platform means you can analyze sales and marketing pipelines in a flash, dig as deep into the data as you need to and quickly visualize charts and graphs to see how spending is going.
You needn’t get lost in the details, either. Create custom dashboards to keep things streamlined. From CAC to ROI for each marketing campaign, Mosaic highlights the figures that matter most to your bottom line.
Forecast for the Future
Budgeting for sales and marketing isn’t just about tracking; it’s about preparing for the road ahead. Mosaic offers advanced forecasting tools that predict future expenses based on trends, seasonality, and market conditions.
Model Scenarios and Optimize Budgets
Mosaic doesn’t just show you where your money is headed — it gives insights on how to best optimize spending. Compare ‘what if’ scenarios and track budget variances always to stay ahead of the curve.
Mosaic is tracking, done better.
Sales and Marketing Expense FAQs
Are sales and marketing expenses considered operating expenses?
Yes, sales and marketing expenses are categorized as operating expenses. These are costs a company incurs through normal business operations.
Sales and marketing expenses are part of the budget for promoting and selling products or services. They’re essential for driving revenue and are factored into the company’s income statement to determine the net profit or loss.
