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Marketing benchmarks.

It's budget time again, and the marketing experts once again have begun to ponder one of the great Dark Mysteries: What's a "normal" level of spending for marketing expenditures?

Trouble is, there's no easy answer. We've published lots of industry benchmarks in other areas of company operations, but marketing remains a question mark. The reason: industry-wide confusion (or perhaps just lack of consensus) about how to classify standard marketing and sales expenses. Some companies lump together all of their marketing, administrative, sales, and support functions in one top-line category; others track "marketing" costs just in terms of their direct out-of-pocket expenses (primarily advertising, collateral, and direct mail).

Thus, even fairly rigorous benchmarking surveys tend to produce widely varying answers about software marketing ratios. We recently looked at data compiled by Schonfeld & Associates, a highly respected research firm that tracks advertising expenditures for a wide variety of industries, and found a typical example of this problem:
 Revenues(*) Ad Spending(*) Ratio
Computer Associates $1,500,000 $24,669 1.64%
Microsoft $2,800,000 $59,471 2.12%
Oracle $1,200,000 $30,557 2.55%
Lotus $828,800 $32,207 3.89%
Symantec $216,600 $8,439 3.90%
Software Publishing $143,130 $6,351 4.44%
Novell $640,100 $28,886 4.51%
Central Point $83,700 $5,000 5.97%
Quarterdeck $47,900 $6,444 13.45%
Corel $52,000 $11,000 21.15%
Borland $226,755 $60,512 26.69%
(*) Revenues and spending (000). source: Schonfeld & Associates, Lincolnshire, I
ll.
Data is based on public company reports, and reflect estimates of money spent on
advertising and promotions, including media and direct mail, production, ad
department operations, research and other direct costs.


If we take these numbers at face value, they suggest that advertising-related expenditures for software companies run from less than 2% to almost 27%, a range that's virtually useless for defining typical spending patterns. Moreover, the estimates themselves are open to serious question. For example, Borland certainly doesn't outspend Microsoft in total dollars, and we doubt that there's actually a twelve-to-one ratio in the revenue percentage each company devotes to promotional costs. (In fact, the two companies seem to rely on roughly the same sales channels and marketing tactics.)

Of course, it's possible to construct a pseudo-benchmark simply by averaging all of these widely scattered data points. That process would yield a target expenditure level of 8.21% of revenues for advertising costs--a benchmark that we notice doesn't happen to describe any of the companies on the Schonfeld list. In short, "garbage in, garbage out."
COPYRIGHT 1992 Soft-letter
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:advertising costs for software companies
Publication:Soft-Letter
Date:Dec 31, 1992
Words:428
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