In 30 seconds
- Sales and marketing expense is what it costs to win and keep customers; software companies usually report it separately.
- You measure it against revenue, but what matters is efficiency: new revenue for every dollar spent the year before.
- High spending makes sense as long as it brings in new revenue at a good clip; with low efficiency it's growth bought at a high price.
- LTV/CAC is useful as a concept, but public companies almost never disclose the data to calculate it.
- Salesforce cut its sales spending from 43.1% to 34.5% of revenue between fiscal 2023 and fiscal 2026, and its operating income rose eightfold.
Introduction
In 2025 HubSpot spent $1,379 million on sales and marketing, 44.1% of its $3,131 million in revenue, and its operating income barely reached $7 million. Microsoft's figure for fiscal 2026 was 8.0%. Both sell software. Is one of them doing it wrong? Not necessarily: they're at very different stages. To know whether sales spending is an investment or a money pit, the percentage isn't enough; you have to see what it brings back.
Explanation
Sales and marketing expense ("Sales and marketing" in a 10-K) covers what a company pays to win customers and keep them: salaries and commissions for the sales force, advertising, digital marketing, events, partner programs. It's part of SG&A expenses. Consumer companies leave it inside that bucket; software companies usually pull it out onto its own line of the income statement, separate from general and administrative costs. That's why the table in this lesson uses software companies: they're the ones that report the figure.
Why does a software company spend so much on selling? Because of how it gets paid. Picture a gym that waives the sign-up fee and pays its salesperson a commission for every new member. In the first month it loses money on that member; if the member stays three years, it makes a lot. Subscription software works the same way: the cost of landing the customer is paid today and the revenue arrives over years. While the company grows fast, sales spending eats into the margin. When growth slows, that spending should shrink as a share of revenue and the margin should start to show.
The two questions
The first is how much it spends: sales and marketing to revenue. The second, and more useful, is what it gets for it. Two tools help with that.
The magic number is the yardstick software investors use: how many dollars of new recurring revenue each dollar of sales and marketing brings in. In its original form it's quarterly and uses recurring revenue, which few companies report the same way. With annual accounts you can build a simple version: one year's revenue increase divided by the prior year's sales and marketing expense.
LTV/CAC compares what a customer is worth over the whole relationship (LTV: the annual gross profit it brings in, divided by the annual churn rate) with what it costs to acquire (CAC: sales spending divided by new customers). In the industry, 3 is the commonly cited benchmark: the customer brings in three times what it cost. But here's the catch: public companies almost never disclose their churn or their CAC, so for you it's a concept for understanding the business, not a number you can calculate from the 10-K.
Formula
Sales and marketing to revenue = Sales and marketing expense / Revenue × 100
Sales efficiency (annual version) = (This year's revenue − Prior year's revenue) / Prior year's sales and marketing
LTV = Annual gross profit per customer / Annual churn rate
CAC = Sales and marketing expense / New customers
LTV/CAC = LTV / CAC
Example
The table below compares five software companies using Kaplio's data; all five break out sales and marketing in their 10-Ks. Read it from top to bottom with the gym in mind: the ones that spend the most as a share of revenue tend to be the ones still signing up customers at full speed. Microsoft will be the lowest by a wide margin.
Step by step: ServiceNow, 2025 (figures from its Form 10-K annual report, in millions of dollars):
1. Revenue: 13,278.
2. Sales and marketing: 4,388.
3. Sales and marketing to revenue: 4,388 / 13,278 = 33.0%.
4. Revenue in 2024: 10,984. Increase: 13,278 − 10,984 = 2,294.
5. Sales and marketing in 2024: 3,854.
6. Efficiency: 2,294 / 3,854 = 0.60. Each dollar of sales spending in 2024 brought in 60 cents of new annual revenue in 2025, revenue that also repeats in the following years for as long as the customer stays.
Your turn. HubSpot (10-K, millions of dollars): revenue of 3,131.3 in 2025 and 2,627.5 in 2024; sales and marketing of 1,379.4 in 2025 and 1,218.8 in 2024.
Sales and marketing to revenue in 2025 = ___%. Hint: more than 44%.
Efficiency = ___. Hint: a bit over 0.4.
Before you look: the same calculation gives Microsoft an efficiency of 1.95 in its fiscal 2026: its revenue grew by $50,115 million on $25,654 million of sales spending the year before. Do you think that makes it the company with the best sales team of the five?
Real-data example
| Company | Ticker | Sales & marketing as % of revenue |
|---|---|---|
| Salesforce, Inc. | CRM | 34.5% |
| Adobe Inc. | ADBE | 27.3% |
| ServiceNow, Inc. | NOW | 33.0% |
| HubSpot, Inc. | HUBS | 44.1% |
| Microsoft Corporation | MSFT | 8.0% |
How to read it
How to read it
Kaplio's stock page doesn't set a bar for this metric, so the ranges below are rough guides and apply to software. Outside software, almost nobody breaks the line out: at Coca-Cola or Procter & Gamble it sits inside SG&A, and the live table would show no data for them.
| Measure | Weak | Normal | Good | Example (10-K) |
|---|---|---|---|---|
| Sales and marketing to revenue, company in customer-acquisition mode | above 50% | 35-50% | below 35% | HubSpot, 44.1% in 2025 |
| Sales and marketing to revenue, mature company | above 35% | 20-35% | below 20% | Adobe, 27.3% in fiscal 2025; Salesforce, 34.5% in fiscal 2026 |
| Annual efficiency (new revenue per dollar spent the prior year) | below 0.3 | 0.3-0.7 | above 0.7 | ServiceNow, 0.60; Adobe, 0.39; Salesforce, 0.27 |
Read the two measures together. High spending with high efficiency is a customer-acquisition engine that's still worth feeding. High spending with low efficiency is growth bought at a high price. Low spending with low efficiency is usually a mature company that no longer grows much, and there's nothing wrong with that if it generates cash.
Pitfalls and limitations
1. Not all growth comes from the sales department. That's the answer to the pre-test. Microsoft's 1.95 doesn't measure its salespeople: its revenue depends on the cloud, on pricing, on products that sell themselves and on acquisitions. Efficiency is only comparable between companies that grow mainly by selling, and never in a year with a big acquisition.
2. You don't see the full commissions. Under US rules, commissions for signing a contract go on the balance sheet and are amortized over several years. As of January 31, 2026, Salesforce had $5,060 million of capitalized contract costs on its balance sheet ($2,075 million current and 2,985 noncurrent), and it amortized $2,197 million in its fiscal 2026. The sales and marketing line shows the amortization, not what was paid that year.
3. Cuts can be read two ways. Lowering sales spending lifts margin instantly. If efficiency was low, that's good news. If it was high, the company is giving up profitable growth.
4. Stock-based compensation. Part of what salespeople earn is paid in stock, and it's included in this line. Don't strip it out: through dilution it costs shareholders just as cash would.
Case in point: Salesforce spends less and earns more
The textbook rule says that in software, cutting sales and marketing slows growth. Salesforce put it to the test. In its fiscal 2023 (ended January 31, 2023) it spent $13,526 million on sales and marketing, 43.1% of its $31,352 million in revenue, and its operating income was $1,030 million. On January 4, 2023, it announced in an 8-K a restructuring plan that included cutting its workforce by about 10%.
Three fiscal years later, in the year ended January 31, 2026, sales spending was $14,345 million, 34.5% of revenue of $41,525 million. Revenue had grown 32.4% and operating income had risen eightfold, to $8,331 million. A good part of that earlier spending wasn't essential to selling.
But look at the other side. Revenue grew 18.3% in fiscal 2023 and only 9.6% in fiscal 2026, with efficiency falling to 0.27. Was it the cuts or a more mature market? The accounts don't say, and that's the lesson: you always judge sales spending together with what it brings in, never on its own. The next step to see whether that recovered margin creates value is ROIC; and to compare the sales effort with the research effort, see the lesson on R&D expense.
Practice on Kaplio
Frequently asked questions
Is marketing a fixed or variable cost?
It's a bit of both. Commissions and campaign advertising move with sales or with the decision to grow; the base salaries of the sales team behave more like a fixed cost. On top of that, management can raise or lower marketing spending at will, which is why it's usually the first lever companies pull to improve margins.
What is the magic number in SaaS?
It's a sales efficiency measure for subscription software: how many dollars of new recurring revenue each dollar of sales and marketing brings in. In its original form it's quarterly. With annual accounts you can approximate it by dividing the year's revenue increase by the prior year's sales and marketing expense. ServiceNow scored 0.60 in 2025 on that version.
What is a good LTV to CAC ratio?
In subscription software, 3 is the commonly cited benchmark: a customer should bring in three times what it cost to acquire. LTV is the gross profit a customer generates over the whole relationship; CAC is what it cost to win that customer. Public companies almost never disclose the inputs, so treat it as a way to understand the business.
What are examples of sales and marketing expenses?
Salaries and commissions for salespeople, search, social and TV advertising, sponsorships, trade shows and events, partner and reseller programs, free trials and customer relationship management tools. In software it's often the largest expense line: HubSpot spent 44.1% of its 2025 revenue on sales and marketing, against 8.0% for Microsoft in fiscal 2026.