Hello, ragazzo-ga!
You have asked a tough question about which information is not
readily available. However, I have found one report which is right on
target and provides a good overview of marketing spending as a
percentage of total revenue. Aside from this article, I believe you
would have to analyze a number of leading individual software
companies in depth to see if you could come up with an industry
average of your own. Since advertising spending is often lumped in
with operating expenses, it would take a good amount of digging and
analysis.
MARKETING SPENDING AS A PERCENTAGE OF OVERALL REVENUE
=====================================================
Soft Letter is a company that deals directly with software company
marketing issues. The following article from the Soft Letter Financial
Handbook deals directly with software companies and the proportion of
expenses reserved for sales and marketing in comparison to total
revenue.
(Unfortunately, neither the PDF or the HTML format provide a decent
view of the charts.)
I have excerpted some of the pertinent information but you may want
to purchase the handbook.
==
From "Benchmarks: Sales and Marketing Cost Ratios - How Software Firms
Spend Their Sales and Marketing Dollars." From the Soft Letter
Financial Handbook.
http://216.239.41.104/search?q=cache:h-Ko1JtCNVgJ:www.softletter.com/pdf_files/FHp10-p13.pdf+percentage+software+firms+spend+on+advertising&hl=en&ie=UTF-8
OR PDF file: http://www.softletter.com/pdf_files/FHp10-p13.pdf.
"Sales and marketing costs have always been one of the software
industry?s biggest budget items, and often the most difficult to
compare from company to company. The marketing mix that builds
high-volume sales for a branded retail title is almost certainly wrong
for companies that sell big-ticket enterprise solutions or
vertical-market products. Competition, price, growth objectives,
product reputation, channels - the list of key marketing variables can
be almost endless."
"And yet there have to be some points of comparison, some way to set
reasonable benchmarks for sales and marketing spending. To see if we
could carve out such benchmarks, we recently polled our readers and
other software company senior executives to see how they divide up
their individual S&M budgets. We collected usable data from a total of
99 respondents, who also supplied demographic data about their annual
revenues and the price of their best-selling products. With the help
of this data, we?ve uncovered some interesting guidelines for sales
and marketing cost comparisons."
S&M Spending as a Percent of Total Company Revenues
-----------------------------------------------------
"We asked our survey respondents to tell us the percent of total
company revenue they spend on "all forms of sales and marketing," and
we found that the overall average was 20.7%, with half of the
companies in our sample reporting S&M spending between 12% and 26%.
(As a point of reference, Microsoft currently spends 18%-19% of its
revenues on sales and marketing)"
"Of course, there are companies that find themselves spending far more
aggressively to win market share or to grow rapidly (in fact, S&M
spending among public software companies is usually in the 45%-50%
range). And there are certainly others that - at least temporarily -
have found niches where single-digit S&M spending levels bring in
acceptable sales. But for most software companies, a sales and
marketing budget of 18%-22% of sales is squarely in the mainstream."
Software and Marketing Spending by Category
-------------------------------------------
"Software companies may invest roughly the same overall percentage of
their revenues in sales and marketing, but when we drill down to
specific expense categories we begin to see more significant
variations. Using survey data on category-level spending, we assigned
our respondents to six groups based on each company?s primary S&M
spending focus - e.g.,vsupport for a direct sales force, reseller
channel promotion, Web sales,etc. We then looked at how companies in
each group typically allocatedvspending for other S&M categories."
Here?s what we found:
The direct sales category:
"For slightly more than half of our respondents, a direct sales force
(including inside telesales and outbound sales reps) is the company?s
top S&M spending priority. Moreover, companies with a direct sales
emphasis tend to commit almost two-thirds of their dollars to this one
category; their budgets have little room for other marketing
activities and channels. Predictably, companies with a direct sales
emphasis tend to sell higher-priced products; median product price for
this group is $17,600."
The reseller channel category:
"Another fairly large group of companies rely on third-party
resellers (VARs, retailers, catalogs, etc.) as their primary sales
channel, and they spend heavily on channel-related lead generation
programs and promotions. However, the total S&M budget for this group
- and for other groups - includes greater spending on marketing
communications and trade shows and seminars than we see in the direct
sales group. Product prices for this group also tend to be lower than
among direct-sales companies, though the median is still almost
$10,000."
The Web/e-commerce category:
"The Web offers an economical alternative to traditional sales
channels, and we identified eight companies that commit the biggest
piece of their S&M budgets to online channels. All of these companies
are small (under $5 million in sales), and they have the lowest total
S&M spending - an average of just 13.4% of sales. Median product price
for this group is quite low, at $523."
The direct response category:
"Eleven companies in our sample sell through direct mail and other
direct channels; like the Web group, these companies typically sell
lower-priced titles (median $795)."
The trade show and seminar category:
"Although we found only five companies in this group, event marketing
does appear to be a viable strategy for at least some companies
(mostly smaller firms). Median product price for this group is
$1,200."
The marketing communications category:
"We found nine companies that invest the biggest chunk of their
budgets (39%) in activities that are chiefly brand-building -
advertising, public relations, demos, sales collateral, and research.
No other category of spending gets much emphasis in this group, yet
their total S&M spending is a fairly efficient 15% and median product
price is $2,000."
*******************************************************************************
To summarize, the average percentage of total revenue spent on sales
and marketing across a range of software tech firms was 20.7%
*******************************************************************************
1996/1997 Spenidng Statistics
==============================
From "Have You Analyzed Sales and Marketing Expenses? Kenneth H.
Bridges, Partner Bridges & Dunn-Rankin, LLP. Culpepper (1997)
http://www.culpepper.com/eBulletin/1997/161bridges.asp
"Software companies responding to Culpepper?s survey for the 1996-97
edition of Financial Operating Ratios for Software Companies (FORSC)
spend, on average, 30 percent of their total annual revenue on sales
and marketing expenses. And, when measured as a percentage of revenue
from new sales only (i.e., excluding recurring revenue), this
percentage increases to 41 percent."
GENERAL TRENDS TOWARD SOFTWARE AVERTISING
===========================================
Software companies plan to increase their online marketing campaigns
even while trimming their advertising budgets, according to a survey
by survey by Smith & Suita and Marketwise Innovations. Online
advertising is gradually being perceived as a more efficient means of
reaching target customers and tracking response than more traditional
advertising methods.
=
"The study surveyed 44 U.S. software companies, most of which are
publicly traded, and found that 55 percent intend to decrease their
advertising spending during 2002. At the same time, 70 percent said
they planned to increase their online ad spending."
"Among the largest U.S. software companies, defined as those posting
revenues greater than $250 million, a whopping 91 percent said they
intend to increase their online marketing spending."
"Internet marketing has really come into its own," said Smith & Suita
Principal Paula Suita. "In the past people just had been looking into
doing Web sites ... Now, they really see the Internet as a key medium
in their marketing toolkit."
"The study also found that 43 percent of all firms were decreasing
their spending on conferences and events, such as trade shows. About
39 percent of the U.S. software firms said they planned to increase
trade show spending from 2001."
Read "Study: Software Firms Shifting to Web Advertising," by
Christopher Saunders. Internet News. (March 19, 2002)
http://www.internetnews.com/IAR/article.php/12_994821
==
A similar article concerning the Smith & Suita expanded a bit more:
"The study examined how companies allocate their marketing budgets
across four categories: channels marketing (value-added resellers and
distributors), product marketing (product and services), marketing
communications (public relations, promotion and advertising) and
market research (competitive, customer and industry). Of these,
marketing communications accounts for the largest percentage of
marketing budgets, with companies spending an average of 54 percent in
the category."
"Marketing executives spoke repeatedly about 'getting value' from
marketing budgets and are placing renewed emphasis on carefully
tracking the results of marketing activities and payoff for each
marketing dollar spent," said Paula Levis Suita, principal of Smith
and Suita Inc. It's no surprise the report found preference being
given to marketing activities that can be easily measured and
tracked."
From "Software Companies Turning Backs on Ads." Cyberatlas. (March 19, 2002)
http://cyberatlas.internet.com/markets/advertising/article/0,1323,5941_994751,00.html
BOOKS AND PUBLICATIONS
======================
You asked whether there were any good books on the subject of software
marketing and allocation of funds toward that component of company
operations.
The Soft Letter website has numerous articles and publications that
are specifically geared toward getting a better handle on the best
ways to market software and allocate financial resources.
Soft Letter
http://www.softletter.com/index.html
Publications from Soft Letter:
The Softletter Financial Handbook (Updated quarterly)
------------------------------------------------------
"The Financial Handbook is a 200-page treasure chest of statistical
reports and benchmark studies on software finance and operations. Here
in one easy-to-navigate book you'll find dozens of separate surveys
and reports on all kinds of software companies, public and private,
with data that companies usually share only with the most trusted
industry analysts."
"And you'll find more than just raw numbers. We've drawn on our
network of company managers and experts for a wealth of analysis, tips
and metrics that will also help you develop smarter management
strategies. You could spend years collecting this kind of savvy advice
(just as we've done). Or you can browse the pages of The Softletter
Financial Handbook--and get an instant brain-dump."
http://www.softletter.com/handbook.html
Software Industry Operating Ratios Guide
----------------------------------------
"Discover how much other software firms spend on marketing, sales, R &
D, support and more. Learn how much revenue and profit you must hear
per employee to stay competitive. Our data helps you set your budgets
with confidence. You also see how our industry's top performers set
their budgets."
http://www.softletter.com/orguide.html
*********
Thanks you for asking a most interesting and challenging question. I
hope the information I have provided is helpful!
umiat
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