This is a question that we often get from companies that are trying to figure out what percentage from their revenues they should be spending on generating demand and driving leads in the door through marketing activities, versus prospecting, qualifying, developing and closing deals with their sales department.
A lot of our customers work in businesses that are manufacturing-oriented where the gross margins are approximately 50%. A good rule of thumb for those kinds of business is that a company that is at 50% gross margins should be spending no more than 15% of it's revenues on sales and marketing. Typically, the breakdown between sales and marketing is 5% for marketing and 10% for sales. When I'm talking about 10% for sales, I'm talking about total sales costs, which includes base salaries, incentive compensation, benefits, as well as sales administration and sales operations.
If these numbers seem out of line to you because of the industry you're in, remember that these can vary tremendously. We work with software businesses where the gross margins are approaching 98%, and that are spending upwards of 25 to 30% of their revenues on marketing and sales activities.
Why is this, you ask? Well, usually it's because they can afford to. Companies that are in the software business are dealing with a lot higher gross margins and as a result, are capable of spending a greater percentage of their revenues to generate demand and drive business development, while at the same time ensuring a healthy bottom line.
If your company is trying to figure out what is an appropriate percentage of spending for it's marketing and sales activities, you might want to consider bringing in a sales and marketing consultant to help you work through this process.
salesmarketing