HACKER Q&A
📣 coolmints

Why Sales cost so high for SaaS companies?


Sales & Marketing account for almost 50% of revenue for most SaaS companies. This is often double what they spend on R&D.

See https://miro.medium.com/max/2406/1*nmQhFQD-MYWGwG1wc-sXHw.png

For more specific examples, for the year 2020:

Confluent - Sales:150M, R&D:100M, Revenue: 230M

DataDog - Sales:160M, R&D:110M, Revenue: 350M

Salesforce - Sales:7B, R&D:2B, Revenue: 16B

I assume most of R&D is just engineering salaries. But what constitutes Sales expenses? Is it just Salespeople salaries and commissions? If not, what are the major contributors?

https://investors.datadoghq.com/static-files/9d3083a2-f95f-48be-a413-c35d154a3046

https://s23.q4cdn.com/574569502/files/doc_financials/2021/ar/Salesforce-FY-2021-Annual-Report.pdf

  👤 WheelsAtLarge Accepted Answer ✓
It's not just SaaS. Marketing & sales costs are high for most companies with a product to sell. It takes a lot of money to put your product into your customer's mind. Just about any company that sells a product will eventually have a sales and marketing budget that's very high relative to other departments in a company. In software companies, manufacturing the product for sale is relatively inexpensive so sales and marketing becomes the highest cost in the budget. R&D is important but usually it's never more important than actually selling the product. Imagine a situation where a company spends the majority of it's revenue in R&D. They may have a great product, after a while, but sales would be unlikely to grow or they would decline since people would not know about your product.

There are exceptions. A company like Tesla has a relatively small marketing budget but that's because of the CEO's constant shenanigans that keep the company in people's minds. A way to get millions of dollars of free advertisement.

👤 throw03172019
S&M includes marketing expenses.