You Need to Allocate Your Sales and Marketing Expenses Between New and Expansion
In episode #2, I break down the new versus existing allocation that is needed for your sales and marketing expenses. If you are going to calculate CAC and other sales efficiency metrics correctly, you must allocate your S&M expenses between new business and expansion business.
Highlights:
- We need gross sales and marketing expenses
- CAC can be gross dollars or a unit costs
- The allocation affects the CAC payback period
- The allocation affects the Cost of ARR β new vs existing
- Early stage not as likely to allocate
- Update this allocation every month
- Disclose to stakeholders in your reporting appendix
- Pitfall: could have the formula correct but your allocation is way off
- This is how metrics can be subjective
