Sales and marketing are two of the critical powerhouses behind what makes startups- or any business or company, for that matter- run successfully. Without sales, a startup can’t stay in business, and without marketing, no one will know about your products and services, so there will be no sales. Both are crucial for the operations of businesses, and without them, a startup would be doomed before it even got off the ground. But how are startups meant to manage the various expenses of sales and marketing, and what factors should be included in said expenses?
Our team of business experts at TaxRobot is here to help explain the secret sauce of marketing and sales expenses and how they support some of the critical metrics for your business. Please continue to find out more and consider exploring our selection of other expertly written resources.
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Sales and Marketing Expenses: What Are They?
In short, sales and marketing expenses are the various external and internal costs that are directly and indirectly related to marketing and selling a startup’s goods and services. Examples of these expenses typically include;
- The various salaries of all sales and marketing employees
- Any tools or platforms used to support sales or marketing activities
- The amount spent on different marketing campaigns (advertisements, trade shows, sponsorships)
Some businesses like to lump their various sales and marketing expenses into a general category covering all overall Selling, General, and Administrative expenses (SG&A expenses). However, keeping these expenses as separate line items can be beneficial since it allows startups to measure and track critical elements of operation, including Customer Acquisition Costs (CAC) and CAC payback.
Why Are Sales and Marketing Expenses Important for Startups?
There is a well-known and direct link between sales, marketing, and revenue. While sales and marketing resources tend to be initially expensive, they can significantly impact your startup’s eventual bottom line. For example, startups that invest their resources only into research and development (R&D) may create stellar products and services. However, they likely won’t find the same success as those who invest in sales and marketing to convince people to purchase said products and services. Without sales and marketing, a startup is likely to go unnoticed.
Additionally, sales and marketing expense data can be essential for startups. Tracking and analyzing said data can play a crucial role in helping them;
- Build more accurate financial forecasts
- Know who to hire and when
- Provide context for other key business metrics (including CAC, CAC ratios, and CAC payback)
Essentially, sales and marketing expenses help ensure startups attract customers and make sales. They can also provide critical intel on how a startup should operate to find future success in the market.
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Sales and Marketing Expenses: The Critical List & Ratio
To best understand sales and marketing performance expenses, it’s essential to compare said costs to the revenue your products and services are producing. It’s generally best to use a sales and marketing expense ratio to compare and determine different success metrics, which will create a number displayed as a percentage of business revenue.
To determine this ratio, you’ll first need all of your startup’s sales and marketing expenses to compare to your eventual revenue. Some of the key elements involved in these expenses typically include;
- Advertising and other marketing campaign costs (including direct mail campaigns, social media campaigns, and display ads)
- Trade show costs (including travel expenses)
- Sponsorships and influencer marketing
- Contractor and consultant costs (for advertising and PR agencies)
- Design and creation (of websites, online ads, and print advertising)
- Sales commissions
- Salaries of marketing and sales employees
Optimizing Your Sales and Marketing Expenses
Sadly, there’s no surefire way for a startup to perfectly optimize its sales and marketing expenses since they can vary wildly from startup to startup and even industry to industry. Businesses will need to experiment and tinker with their sales and marketing costs over time to determine the best approaches and strategies to earn a solid revenue. That said, taking the time to understand and analyze the performance of sales and marketing return on investment (ROI) is generally a good place to start and will help startups better determine the best ways to invest their resources in the future.
For example, say that a startup spends several thousands of dollars on a few trade shows but receives only a tiny handful of leads per show. In that case, they will likely want to re-allocate their funds into another type of marketing campaign that provides a more effective cost per lead (CPL). Startups can also leverage several low-cost content marketing options during their early stages to help improve marketing and sales without going overboard with expenses, such as search engine optimization (SEO) and social media engagement.
Whatever methods a startup uses, they must find a good balance between their expenses and revenue. It’s also essential to remember that spending more money on sales and marketing won’t necessarily guarantee more income.
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Final Thoughts to Consider
Leveraging, understanding, and analyzing sales and marketing expenses can be a significant factor in determining the success of a startup and its ultimate bottom line for revenue. Our experts at TaxRobot sincerely hope that the above information has helped you better understand the importance of these factors and given you some ideas on how your business can leverage them going forward. Please consider contacting us today for even more information and get access to our specialized tax credit software.
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