Fact: Most of the software industry loses money on each new license it sells. Sales, general and admin (SG&A) costs exceed those of initial license rates. While it makes it up in very high-margin annual maintenance, it is not uncommon for SG&A to be 40 to 45% of total revenues, while R&D is a much more miserly 10 to 15%. Ask most software vendors why SG&A is so high, and they will blame buyers - multiple demos, RFPs with hundreds of pages of feature/function checklists etc.
If buyers are so difficult, how come other tech sectors do not have such high SG&A rates? Brian Sommer describes his experience at Accenture. He grew up as a technician, and as he grew in experience became more of a salesperson and customer account manager. This mix of delivery/sales skills is rare in software. In fact, a quick poll of my friends in software shows an amazing fragmentation in software SG&A roles:
- Sales Operations Manager
- Inside sales support
- Industry Analyst Relations
- Public Relations
- Revenue accountant
- Pricing Analyst
- Customer contracts attorney
- Investor Relations
- CIO
- Alliance Manager
- Business Development Manager
- Graphics Support
- Channel Manager
- Channel Marketing Manager
- Competitive Intelligence Manager
- Events coordinator
- Advertising Manager
- Vertical sales manager
- Marketing Coordinator
- Web Marketing Manager
- Manager, Demand Generation
- Pre Sales Lead Support
- Database Marketing Manager
- Marketing Copywriter/Editor
- Inbound/Outbound Sales Support
- CFO
- Regional/Field Office Manager
And amazingly, many of the roles are supplemented by specialist consultants who coach vendors how to deal with industry analysts, provide sales coaching, write white papers etc. (and yes, my firm has benefited on occasion for such consulting assignments)
Over the last decade advances in technology have allowed us to safely go from 2 pilots and a flight engineer to 2 pilots who can fly much bigger planes, on longer routes (with an extra crew on really long flights). May be a good model for the software industry to think about. More generalists and better technology for its SG&A. Because 45% of revenues in SG&A is not good for customers or investors.
