If it were a pie chart, there wouldn’t be any pie left.
138%: that’s the total cost of sales and marketing when calculated as a percentage of revenue revealed in the highly anticipated stock offering from Box Inc. on Friday. For perspective, the high-profile tech company pulled in about $124.2 million in revenue in its past fiscal year. At the same time, it spent just north of $171 million on sales and marketing expenses.
That might seem like a lot of money. But it’s not uncommon for companies, particularly in tech, to grow the company aggressively and forego profits to own a market and then level out expenses as revenue grows. And this is certainly Box’s plan of attack. According to their prospectus, the company expects sales and marketing costs to continue to rise, but shrink as a percentage of revenue as it expands into more international markets. (20% of Box revenue came from outside the U.S. their past fiscal year.)
And the size of spend for sales and marketing makes even more sense when you consider what falls into that bucket. There’s the usual items like commissions and headcount, advertising, product marketing, and corporate communications.
But a big part of Box’s strategy is offering a “freemium” subscription. Individual consumers can sign up for a basic Box account at no cost, and the expectation is a subset will upgrade to premium subscriptions—or even better bring them into their work and get their business to buy enterprise accounts. The data center and customer support costs for those free accounts is considered a marketing expense—and 90% of Box’s users are non-paying customers.
So sales and marketing is clearly the driving force of Box’s growth plans. And the next step is grow revenue faster than costs, and hope the public markets support them along the way.
It worked Friday. Box shares closed at nearly 66% over it’s opening share price of $14.