Sales and Marketing Expenses

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Market-Wide

Efficiency

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Short Definition

Sales & Marketing (S&M) Expense is the all-in cost to acquire and grow customers in a period: people (sales + marketing teams), paid media, agencies/programs, tools, partner commissions, travel/events, and amortized sales commissions (per accounting rules).

Short Definition

Why it matters for Investors

Growth engine cost: Shows how much it takes to drive pipeline, bookings, and ARR.
Efficiency lens: Feeds CAC, CAC Payback, Magic Number, LTV/CAC, and Burn Multiple.
Quality of growth: Channel and segment mix inside S&M explains unit economics and scalability.

Why it matters for Investors

Growth engine cost: Shows how much it takes to drive pipeline, bookings, and ARR.
Efficiency lens: Feeds CAC, CAC Payback, Magic Number, LTV/CAC, and Burn Multiple.
Quality of growth: Channel and segment mix inside S&M explains unit economics and scalability.

Why it matters for Investors

Growth engine cost: Shows how much it takes to drive pipeline, bookings, and ARR.
Efficiency lens: Feeds CAC, CAC Payback, Magic Number, LTV/CAC, and Burn Multiple.
Quality of growth: Channel and segment mix inside S&M explains unit economics and scalability.

Formula

Practical considerations -

Set the rulebook: What sits in S&M vs COGS vs G&A? Publish and stick to it.
Customer success / onboarding: If they deliver contracted SLAs, put them in COGS; if they’re growth/retention oriented, keep in S&M (be explicit).
Commissions: Capitalize incremental costs to obtain a contract; expense amortization here each period.
Channel view: Track by paid vs organic, direct vs partner, and new logo vs expansion.
Attribution: Tie spend to pipeline/ARR cohorts to keep CAC and Magic Number honest.

Formula

Practical considerations -

Set the rulebook: What sits in S&M vs COGS vs G&A? Publish and stick to it.
Customer success / onboarding: If they deliver contracted SLAs, put them in COGS; if they’re growth/retention oriented, keep in S&M (be explicit).
Commissions: Capitalize incremental costs to obtain a contract; expense amortization here each period.
Channel view: Track by paid vs organic, direct vs partner, and new logo vs expansion.
Attribution: Tie spend to pipeline/ARR cohorts to keep CAC and Magic Number honest.

Formula

Practical considerations -

Set the rulebook: What sits in S&M vs COGS vs G&A? Publish and stick to it.
Customer success / onboarding: If they deliver contracted SLAs, put them in COGS; if they’re growth/retention oriented, keep in S&M (be explicit).
Commissions: Capitalize incremental costs to obtain a contract; expense amortization here each period.
Channel view: Track by paid vs organic, direct vs partner, and new logo vs expansion.
Attribution: Tie spend to pipeline/ARR cohorts to keep CAC and Magic Number honest.

Worked Example

Line Item	Amount	Notes
Add : People (Sales + Marketing)	$520,000	Salaries, Benefits, Variable Comp.
Add : Paid Media	$180,000	Included above
Add : Agencies/ Programs	$70,000	Creative, PR, Content, Field Programs
Add : Tools/ Software	$35,000	CRM, Marketing Automation, Attribution
Add : Partner Commissions	$40,000	Reseller/ Referral Payouts
Add : Travel/ Events	$25,000	Conferences, Roadshows
Add : Amortized Sales Commissions	$30,000	Period Amortization under accounting rules (eg. under ASC 606)
Total S&M Expense	$900,000	Sum of above

Notes:

“People” = wages, benefits, bonuses for sales + marketing.
“Amortized Commissions” = period expense from capitalized contract costs (ASC 606).
Do not include delivery/support costs needed to fulfill contracts → those belong in COGS/Cost of Sales by policy.

Worked Example

Line Item	Amount	Notes
Add : People (Sales + Marketing)	$520,000	Salaries, Benefits, Variable Comp.
Add : Paid Media	$180,000	Included above
Add : Agencies/ Programs	$70,000	Creative, PR, Content, Field Programs
Add : Tools/ Software	$35,000	CRM, Marketing Automation, Attribution
Add : Partner Commissions	$40,000	Reseller/ Referral Payouts
Add : Travel/ Events	$25,000	Conferences, Roadshows
Add : Amortized Sales Commissions	$30,000	Period Amortization under accounting rules (eg. under ASC 606)
Total S&M Expense	$900,000	Sum of above

Notes:

“People” = wages, benefits, bonuses for sales + marketing.
“Amortized Commissions” = period expense from capitalized contract costs (ASC 606).
Do not include delivery/support costs needed to fulfill contracts → those belong in COGS/Cost of Sales by policy.

Worked Example

Line Item	Amount	Notes
Add : People (Sales + Marketing)	$520,000	Salaries, Benefits, Variable Comp.
Add : Paid Media	$180,000	Included above
Add : Agencies/ Programs	$70,000	Creative, PR, Content, Field Programs
Add : Tools/ Software	$35,000	CRM, Marketing Automation, Attribution
Add : Partner Commissions	$40,000	Reseller/ Referral Payouts
Add : Travel/ Events	$25,000	Conferences, Roadshows
Add : Amortized Sales Commissions	$30,000	Period Amortization under accounting rules (eg. under ASC 606)
Total S&M Expense	$900,000	Sum of above

Notes:

“People” = wages, benefits, bonuses for sales + marketing.
“Amortized Commissions” = period expense from capitalized contract costs (ASC 606).
Do not include delivery/support costs needed to fulfill contracts → those belong in COGS/Cost of Sales by policy.

Best Practices

Segment the spend: New logo vs expansion, SMB vs enterprise, self-serve vs sales-led.
Tag brand vs demand: Track long-term brand separately from near-term pipeline.
Time alignment: When analyzing efficiency, align spend with the cohort whose revenue it generated (often a 1-quarter lag).
Clean data: Single source of truth for headcount, media, tools, and commissions.

Best Practices

Segment the spend: New logo vs expansion, SMB vs enterprise, self-serve vs sales-led.
Tag brand vs demand: Track long-term brand separately from near-term pipeline.
Time alignment: When analyzing efficiency, align spend with the cohort whose revenue it generated (often a 1-quarter lag).
Clean data: Single source of truth for headcount, media, tools, and commissions.

Best Practices

Segment the spend: New logo vs expansion, SMB vs enterprise, self-serve vs sales-led.
Tag brand vs demand: Track long-term brand separately from near-term pipeline.
Time alignment: When analyzing efficiency, align spend with the cohort whose revenue it generated (often a 1-quarter lag).
Clean data: Single source of truth for headcount, media, tools, and commissions.

FAQs

Does S&M include customer success?
Only if the team’s mission is growth/retention (renewals, expansion). If they deliver contracted service (support/implementation), that’s usually COGS.
Do we include sales commissions?
Yes—amortized commissions expense belongs in S&M. The capitalized portion sits on the balance sheet.
Are partner revenue shares in S&M or COGS?
If it’s a distribution/marketing fee, keep in S&M. If it’s a delivery/take-rate tied to serving the customer (common in marketplaces/fintech), put it in COGS.
Is S&M just ad spend?
No. It’s people + media + programs + tools + partner costs + amortized commissions.
How does S&M connect to CAC and Magic Number?
CAC ≈ S&M (fully loaded for acquisition) ÷ new customers.
Magic Number ≈ Net New ARR this quarter ÷ S&M last quarter.

FAQs

Does S&M include customer success?
Only if the team’s mission is growth/retention (renewals, expansion). If they deliver contracted service (support/implementation), that’s usually COGS.
Do we include sales commissions?
Yes—amortized commissions expense belongs in S&M. The capitalized portion sits on the balance sheet.
Are partner revenue shares in S&M or COGS?
If it’s a distribution/marketing fee, keep in S&M. If it’s a delivery/take-rate tied to serving the customer (common in marketplaces/fintech), put it in COGS.
Is S&M just ad spend?
No. It’s people + media + programs + tools + partner costs + amortized commissions.
How does S&M connect to CAC and Magic Number?
CAC ≈ S&M (fully loaded for acquisition) ÷ new customers.
Magic Number ≈ Net New ARR this quarter ÷ S&M last quarter.

FAQs

Does S&M include customer success?
Only if the team’s mission is growth/retention (renewals, expansion). If they deliver contracted service (support/implementation), that’s usually COGS.
Do we include sales commissions?
Yes—amortized commissions expense belongs in S&M. The capitalized portion sits on the balance sheet.
Are partner revenue shares in S&M or COGS?
If it’s a distribution/marketing fee, keep in S&M. If it’s a delivery/take-rate tied to serving the customer (common in marketplaces/fintech), put it in COGS.
Is S&M just ad spend?
No. It’s people + media + programs + tools + partner costs + amortized commissions.
How does S&M connect to CAC and Magic Number?
CAC ≈ S&M (fully loaded for acquisition) ÷ new customers.
Magic Number ≈ Net New ARR this quarter ÷ S&M last quarter.

Related Metrics

Parents: Operating Expense, Total Expense (Operating Expense + COGS)

Children / Components:

People (fixed comp.) : Salaries, wages, benefits, payroll taxes for: SDR/BDR, AEs, Sales Ops, Sales Eng/Solutions, Account Management/CS (if primarily expansion), Marketing (growth, content, brand, product marketing), Marketing Ops, RevOps.
Variable comp.:
- Sales commissions (capitalized if incremental to win the contract;
amortized to S&M over the benefit period).
- Bonuses, SPIFFs, draws/true-ups.
Agencies & contractors : Performance marketing (paid search/social), SEO, content/creative, PR/comms, brand, event agencies, outsourced SDR.
Paid media & promotion : Search/social/display/video/retargeting, affiliate fees, sponsorships, podcast/newsletter ads, directory/listing fees.
Events & field : Trade shows (booth, freight, badges), roadshows, webinars, customer conferences, speaker fees, swag/printing.
Content & creative : Design, copywriting, video/photo production, localization, case studies, landing pages, marketing site content.
Software, data & tools : CRM, marketing automation, email platforms, attribution/analytics, ABM/intent data, enrichment (e.g., ZoomInfo), lead routers, sales engagement/dialers, proposal/e-sign, demo/POC tools.
Partnerships & channels : MDF/co-marketing with partners, reseller incentives, referral fees (for acquisition), marketplace listing/promotional fees.
Travel & enablement : Sales/marketing T&E, training, certifications, enablement programs, sales kickoffs.

Commonly mistaken for:

COGS/Cost of Sales (Delivery Costs) : servers/CDN (to run the product), card fees (payment processing), must-have third-party APIs (e.g., SMS, LLM, maps), shipping/packaging/returns, the per-order cut you pay partners/suppliers, and any onboarding/support you must provide to meet promised SLAs.
G&A Expense : Finance, HR, legal, IT helpdesk, office facilities.
R&D Expense : Engineering, product, design building the product.

Related Metrics

Parents: Operating Expense, Total Expense (Operating Expense + COGS)

Children / Components:

People (fixed comp.) : Salaries, wages, benefits, payroll taxes for: SDR/BDR, AEs, Sales Ops, Sales Eng/Solutions, Account Management/CS (if primarily expansion), Marketing (growth, content, brand, product marketing), Marketing Ops, RevOps.
Variable comp.:
- Sales commissions (capitalized if incremental to win the contract;
amortized to S&M over the benefit period).
- Bonuses, SPIFFs, draws/true-ups.
Agencies & contractors : Performance marketing (paid search/social), SEO, content/creative, PR/comms, brand, event agencies, outsourced SDR.
Paid media & promotion : Search/social/display/video/retargeting, affiliate fees, sponsorships, podcast/newsletter ads, directory/listing fees.
Events & field : Trade shows (booth, freight, badges), roadshows, webinars, customer conferences, speaker fees, swag/printing.
Content & creative : Design, copywriting, video/photo production, localization, case studies, landing pages, marketing site content.
Software, data & tools : CRM, marketing automation, email platforms, attribution/analytics, ABM/intent data, enrichment (e.g., ZoomInfo), lead routers, sales engagement/dialers, proposal/e-sign, demo/POC tools.
Partnerships & channels : MDF/co-marketing with partners, reseller incentives, referral fees (for acquisition), marketplace listing/promotional fees.
Travel & enablement : Sales/marketing T&E, training, certifications, enablement programs, sales kickoffs.

Commonly mistaken for:

COGS/Cost of Sales (Delivery Costs) : servers/CDN (to run the product), card fees (payment processing), must-have third-party APIs (e.g., SMS, LLM, maps), shipping/packaging/returns, the per-order cut you pay partners/suppliers, and any onboarding/support you must provide to meet promised SLAs.
G&A Expense : Finance, HR, legal, IT helpdesk, office facilities.
R&D Expense : Engineering, product, design building the product.

Related Metrics

Parents: Operating Expense, Total Expense (Operating Expense + COGS)

Children / Components:

People (fixed comp.) : Salaries, wages, benefits, payroll taxes for: SDR/BDR, AEs, Sales Ops, Sales Eng/Solutions, Account Management/CS (if primarily expansion), Marketing (growth, content, brand, product marketing), Marketing Ops, RevOps.
Variable comp.:
- Sales commissions (capitalized if incremental to win the contract;
amortized to S&M over the benefit period).
- Bonuses, SPIFFs, draws/true-ups.
Agencies & contractors : Performance marketing (paid search/social), SEO, content/creative, PR/comms, brand, event agencies, outsourced SDR.
Paid media & promotion : Search/social/display/video/retargeting, affiliate fees, sponsorships, podcast/newsletter ads, directory/listing fees.
Events & field : Trade shows (booth, freight, badges), roadshows, webinars, customer conferences, speaker fees, swag/printing.
Content & creative : Design, copywriting, video/photo production, localization, case studies, landing pages, marketing site content.
Software, data & tools : CRM, marketing automation, email platforms, attribution/analytics, ABM/intent data, enrichment (e.g., ZoomInfo), lead routers, sales engagement/dialers, proposal/e-sign, demo/POC tools.
Partnerships & channels : MDF/co-marketing with partners, reseller incentives, referral fees (for acquisition), marketplace listing/promotional fees.
Travel & enablement : Sales/marketing T&E, training, certifications, enablement programs, sales kickoffs.

Commonly mistaken for:

COGS/Cost of Sales (Delivery Costs) : servers/CDN (to run the product), card fees (payment processing), must-have third-party APIs (e.g., SMS, LLM, maps), shipping/packaging/returns, the per-order cut you pay partners/suppliers, and any onboarding/support you must provide to meet promised SLAs.
G&A Expense : Finance, HR, legal, IT helpdesk, office facilities.
R&D Expense : Engineering, product, design building the product.

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