This week's Facebook S-1 filing allowed us to get a glimpse of figures which have been the subject of much speculation over time. You should definitely check out Jesse Noyes' 10 fast facts about Facebook.
But - what can be learned from this and other recent filings about the way that sales and marketing works at these companies? The most talked about IPOs of the last year have been ad-selling social network type businesses. And - like any ad-selling business, the customers are not necessarily the members that make up their network. In fact, that user base is actually the product. The paying customer of this product are the other organizations and businesses who buy ads, making this akin to a B2B relationship.
The marketing departments of these companies, therefore, must generate ever-increasing ad-revenues through their efforts - either at growing their product (users) or selling more ads. If you view the efforts of sales and marketing as being to influence net revenue growth, then the ratio of new annual revenue per sales & marketing dollar spent is an easy way to determine relative effectiveness, or marketing return on investment. Measuring this effectiveness isvery important for fast growing companies, to avoid the temptation to only look at top-line growth without looking at ways to optimize the engine that drives it.
We looked at these ratios for some recently public companies, and compared them to the similar but more established Google and also to the average of the 10 largest companies on the S&P 500. We found that Facebook is topping all of the others currently, at $4.52 per $1 of investment. Clearly, advertisers are not taking very much convincing to pay for access to Facebook's massive audience.
Despite the Large Cap 10 from the S&P faring last in this group (slightly behind Groupon), it should be mentioned that this group contains a notable exception: Apple's blowout 4th quarter close actually puts it higher than all the rest - including Facebook.
In short, measuring your ROI is an important step in resource allocation. Making decisions on the ROI of a new investment compared to the overall ROI of all your portfolio of investments will make your money grow faster.
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