Sales and Marketing (S&M) % of Revenue is an essential financial measure that shows how much money is being reinvested in growth by dividing total sales and marketing costs by revenue.

S&M % of Revenue Formula

Tracking total sales and marketing (S&M) expenses as a percent of revenue helps show a company's efficiency and maturity. It shows how much of a company's income is being put back into growth.

It also helps teams figure out if the company is spending too little, too much, or just the right amount to get new customers and keep them.

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The percentage will be very large (>100%) when a business is beginning to scale, but will taper off over time, though most software companies will always spend a significant percentage of their revenue on S&M.

This number is important because S&M is often the most expensive part of SaaS. If you're only looking at the raw dollar amount, you won't learn much.

One company might be able to spend $5 million on sales and marketing, but another might not be able to. S&M % gives you more information by comparing that amount of money spent to the amount of money made. It helps investors, RevOps, and finance look at the growth strategy, the budget discipline, and whether the go-to-market engine is getting better over time.

Let’s say a SaaS company generates $10 million in revenue and spends $4 million on sales and marketing.

That means the company is reinvesting 40% of its revenue into sales and marketing. The interpretation of this number will depend on the stage of a company:

• If the company is early stage and growing quickly, 40% might be normal or even conservative.
• If the company is more mature and growth is slowing, 40% might suggest the business needs to improve efficiency.
• If S&M % rises but growth does not improve, that can be a warning sign that spend is becoming less productive.
• If S&M % falls while growth remains strong, that may suggest the company is becoming more efficient.

So the metric is most useful when viewed alongside growth rate, CAC, CAC payback, and Magic Number. On its own, it shows investment level. In context, it shows whether that investment is working.

What are S&M expenses?

Sales and marketing expenses (S&M) affect how fast a business can grow, how well it gets new customers, and how investors see the quality of that growth. S&M is often their biggest operating cost for companies starting out.

For companies that are further along, it becomes a key way to measure efficiency and how well they use their capital.

S&M is the total cost to acquire and grow customers during a given period. It includes both direct and indirect costs tied to selling and marketing a product or service.

It’s not just ad spend or sales commissions. It usually includes people, programs, tools, events, partner costs, and other supporting expenses that help generate pipeline, close deals, and expand customer relationships.

Total S&M expense

Here is a simple example for one period:

This gives the finance and operations teams a complete picture of how much it cost to run the go-to-market engine during that time.

What's the difference between S&M and COGS?

One of the hardest questions about classifying SaaS is where to put Costs of Goods Sold (COGS), customer success, and other support functions.

• COGS includes costs required to deliver the contracted product or service
• S&M includes costs tied to acquiring, expanding, or renewing customers

It might sound simple, but in practice some roles sit near the boundary.

When Customer Success belongs in COGS

Customer Success (CS) is often closer to COGS when the team is essential to delivering what the customer purchased.

This is more common in early-stage or services-heavy companies. For example:

• Implementation-heavy onboarding
• Technical support needed to fulfill the contract
• Technical workarounds to bridge product gaps
• Support against contractual SLAs
• Mandatory service delivery activities

In those cases, the work is part of delivering the service, not just growing the account.

When Customer Success belongs in S&M

Customer Success is often closer to S&M when the team’s main role is growth and retention rather than service delivery. For example:

• Renewal management
• Upsell and cross-sell
• Increasing seat count
• Expansion strategy
• Adoption programs designed to grow revenue

In mature SaaS companies, CS often shifts in this direction. The product delivers more of the value directly, while the team focuses on customer behavior, retention, and monetization.

Why the difference between S&M and COGS matters

This decision affects several key metrics, and it can change how efficient or profitable the business looks on paper.

If Customer Success sits in COGS:

• Gross margin goes down: If revenue is $1,000,000 and COGS is $200,000, gross margin is 80%. If you move $100,000 of Customer Success into COGS, total COGS becomes $300,000 and gross margin drops to 70%.
• LTV may go down if gross margin is part of the formula: If ARPU is $10,000 and customer lifetime is 5 years, revenue-based LTV is $50,000. But if you calculate LTV using gross margin and margin falls from 80% to 70%, gross profit per customer falls too, so LTV drops.
• CAC may look lower if CAC only uses S&M: If sales and marketing spend is $500,000 and the company adds 100 customers, CAC is $5,000. If Customer Success is classified in COGS instead of S&M, CAC stays at $5,000 even though the business is still spending money to support growth and retention.

If Customer Success sits in S&M:

• Gross margin looks stronger: Using the same $1,000,000 revenue example, keeping that $100,000 of Customer Success out of COGS keeps gross margin at 80% instead of 70%.
• CAC may rise if fully loaded S&M is used: If S&M was $500,000 and Customer Success adds another $100,000, total S&M becomes $600,000. With 100 new customers, CAC rises from $5,000 to $6,000.
• Growth costs become more visible: If Customer Success is responsible for renewals, upsells, and adoption, classifying it inside S&M makes it easier to see the full cost of retaining and expanding customers instead of hiding part of that cost in service delivery.

There is no universal rule to follow. What matters most is having a clear policy, applying it consistently, and making sure leaders and investors understand how the company classifies Customer Success and why.

Why is it important to compare S&M vs other metrics?

S&M by itself tells you how much you spent. But it becomes more useful when you add efficiency metrics to it.

There is more information about these metrics elsewhere, but here is what S&M helps signal when you look at them.

Customer Acquisition Cost (CAC)

CAC uses S&M to show how much it costs to acquire a new customer.

A higher CAC isn’t always bad. It may be reasonable if the business sells large enterprise contracts with strong retention. But CAC becomes a problem when acquisition costs rise faster than customer value.

LTV:CAC ratio

This ratio compares customer lifetime value to acquisition cost. A common healthy target is at least 3:1.

When S&M is high, this ratio helps answer whether that spend is justified. A company may be spending heavily, but if the resulting customers are valuable and durable, the model may still be attractive.

CAC payback period

CAC payback shows how long it takes to earn back acquisition cost from customer gross profit.

This is very important for planning cash flow. If payback takes a long time, growth can start to hurt the balance sheet even if sales are still strong.

SaaS Magic Number

The SaaS Magic Number compares net new ARR to prior-period S&M spend. It is one of the simplest ways to evaluate sales efficiency at the company level.

If S&M goes up but the Magic Number goes down, your company might not be buying growth as effectively as it used to.

What’s the S&M expense ratio?

While most teams track total S&M, not so many track the relationship between sales expense and marketing expense.

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That ratio can help you understand how the S&M budget is split between seller capacity and demand creation.

Sales/Marketing Expense Ratio = Sales Expense / Marketing Expense

A company can improve total S&M efficiency while quietly creating imbalance inside the go-to-market engine.

Sales might keep getting more budget while marketing gets squeezed. On paper, total S&M may still look acceptable. In practice, the company may end up with too many sellers chasing too little pipeline.

This creates a series of common problems:

1. Underfed sellers
2. Rising pressure on marketing
3. More pipeline complaints
4. Weaker productivity over time

For example, suppose a company’s S&M budget shifts like this over two years:

This business now spends $3 on sales for every $1 it spends on marketing. That could be a sign that pipeline generation isn't getting enough money.

Sales leaders often have more direct control over planning because it's easier to see how many people are needed to meet quotas. If the company only looks at top-line S&M benchmarks, it might be harder for marketing to defend its budget.

That's why this ratio is helpful. It brings up the balance question right away: Are we funding both creating demand and converting demand in a way that makes sense?