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Ask Slashdot: What's Your Company's Marketing-to-Engineering Ratio?
An anonymous reader writes "I just learned that the company I work for annually budgets ~$17,000 for non-labor engineering expenses, but budgets ~$250,000 for non-labor marketing and sales expenses. Am I just being cynical when I say that my company spends almost 15 times as much trying to convince the outside world that we make a good product, than it spends on actually making a good product? What's the marketing-to-engineering ratio at your company?"
you would expect a huge difference what are the overall budgets like.
I would think engineering is mostly labor, while marketing involves quite a bit of non-labor expenses. There's your difference.
By excluding labour costs, you've skewed the facts. Engineers themselves are the focus of the engineering department, whereas adverts (a non-labour cost) are the focus of the marketing department.
...on things other than salary.
Depending on the market you are in, I would very much expect your non-labor expenses in Sales and Marketing to vastly outweigh your engineering non-labor costs.
If I work at a company with 1 marketing guy/gal and 10 engineers, and I spend 1 dollar on marketing non-labor expenses and $0 on engineering non-labor expenses I would be spending an infinite amount of money more on non-marketing expenses but I'd still be clearly focused on engineering.
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i don't get it. are you saying that it's obvious that marketing is more important than engineering?
Marketing and sales have high expenses. They need to buy ads, for starters, and they often need to travel around the globe. In engineering, the bulk of the cost is the engineers themselves (which is excluded from your numbers). In certain industries they might need some expensive equipment, but that gets amortized over several years.
Depends whether they are they physical or software products? And whether assembly of physical products is outsourced to other companies.
If they are software products, then most of the cost will be in the labor side, not the non-labor side of the budget and without that information, an informed opinion isn't possible.
$17,000 will get you a pair of very decent servers that can host virtualization quite happily for a couple of years. Or one rather cheap CNC machine if you're making physical products.
Marketing on the other hand is expensive. $250,000 won't buy you a TV advert series on mainstream channels. You'll probably squeeze printed media, maybe a booth at a couple of tech events and online advertising out of that.
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There are very few products that serve needs, so manufacturing the desire for conspicuous consumption is more important than making sure the product works reliably.
Just naive, that's all.
Get a grasp on the concept of marginal costs, and it all might start to make sense to you.
Well, we have 3 lab rats, but only two peddlers.
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You're looking at one aspect of the budget. Non-labor expense is usually stuff like paying consulting firms, "cloud services," buying advertisements, paying for training, etc. Capital expense is where you typically book things like servers, enterprise software, storage, etc. So this could be a company who spends a ton of money on marketing crap, or it could just be a company that spends more on external advertising buys and focus studies than it does on sending IT guys to training and outsourcing business apps. Without looking at the total picture it's hard to say what they really invest in.
Am I just being cynical when I say that my company spends almost 15 times as much trying to convince the outside world that we make a good product, than it spends on actually making a good product?
Short answer, yes you are being needlessly cynical.
Longer answer, don't underestimate how hard it is to sell any product, even a very good one. Further, it isn't a moral issue. Activities cost what they cost. Pick any software company you care to mention and you'll find that their engineering costs are somewhere between 10-20% of total expenses. Most of the rest is the cost of sales and administration with sales and marketing accounting for the lions share of the expense. The reason for that isn't because the sales team is wasting money but because it requires a lot of resources to convince people to buy something. The activities used to sell products frequently don't benefit from economies of scale and like basic research have uncertain paybacks on the investment.
Frankly I think it is a worthwhile exercise for every engineer to spend some time trying to sell their product. Engineers too often are dismissive of sales and marketing and they shouldn't be. A good sales man is an incredibly valuable asset and frequently harder to find than a good engineer. I run a company where we are pretty good on the engineering but until recently were pretty bad at sales. (we're still not great but improving) And the result showed. We make a good product but that isn't enough by itself.
cars, breakfast cereal, video games are all about the same no matter the brand you buy. that's why the amount spent marketing them dwarfs the engineering budgets. iphones and samsung galaxies are pretty close.
basically any product where the competition makes the same thing that is not very different from yours, you have to spend a lot on marketing. investing in engineering in this case is usually a waste of resources since most of your potential customers won't care
Engineers rarely need to travel anywhere, whereas sales people need to be on the road all the time working with and at customers, even in technical (e.g. "sales engineering") roles. Travel is very costly, when I was in sales engineering doing on-site proof of concept deployments, demonstrations, etc... I was easily racking up travel expenses equal to or greater than my annual salary. And this wasn't particularly glamourous travel; customer sites where the technical guys are tend to be out in the middle of nowhere. As a ballpark, that $250K number you cite would be enough to support around 3-10 sales people depending on how on-site intensive your product and sales model is. I presume you know how many engineers you have, so you can compare and decide for yourself.
The ratio of $1 on marketing expenses to 0 engineering expense is infinity. (Or pedantically, the limit of 1 divided by x as x approaches 0 from the positive side increases without bound.)
This seems to be entirely based on what market you are in. If you are doing software programs in a small company then this seems very reasonable. If you are doing something like pharmaceutical drug creation this would not be even a tiny bit reasonable. Based on the dollar values involved I would guess this is a software company and not actual engineering. Having been a programmer for 10 years and now becoming an engineer there is a huge world of difference.
Most engineering software apps I have run into (process simulation, fluid dynamics, materials etc) cost $10K-$100K per year which would completely wipe out that budget instantly and that is a per engineer cost. Most of these apps also have no free software counterparts. These apps are also updated frequently (as new materials and the simulations for these get entered into the system) so these costs are recurring. This software is hard and expensive to develop and requires actual lab work to create the software simulations.
Computer modeling for biotech drug manufacturing is HARD!
I agree this must be the dumbest Ask Slashdot in a while, and that's saying something. What would marketing do with labor costs alone, have them roam the streets as wandering billboards? You need to buy online ads, newspaper ads, magazine ads, tv ads, radio ads, billboards, cinema ads, product placements, banners, flyers, folders and various marketing stunts. Meanwhile software developers mainly need a desk and a computer - which may be considered general overhead since all employees need those - and the rest is small change. In other obvious news, software development companies have more labor costs than manufacturing companies with factories, robots, raw materials and inventory.
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What's the ROI for non-labor engineering expenses vs. non-labor marketing and sales expenses? I think you'll find your answer to the budget question here.
If you have hardware engineers, you don't spend $0 on non-labor expenses. In fact the non-labor expenses will radically dwarf the labor expenses. The tools for some areas can cost as much as a headcount, in others it's a significant fraction of a headcount (and more fun, these are the ones where you need nearly 1:1 license seats/headcount). Then there's jobs you subcontract (backend/layout, custom components, tooling).
And all that is cheap compared to factory NRE & manufacturing costs. I easily spend twice my salary per year in protoype hardware alone. When we go to production, a small run costs more than the entire labor cost of engineering in several years. Hopefully we sell and that money gets earned back of course, but the initial outlay is huge.
Marketing can spend money like nobodies business, even excluding travel. It's amazing how much they spend considering how little it clearly does. But unless you're doing software I would be very surprised if you compared department budgets and Marketing spent more than Engineering (counting MFG as part of engineering, as some companies do).
Marketing should never set deadlines but they should be able to communicate outside realities. There might be some external date that needs to be hit and they should be able to see we need this by this date for this external reason and why it is so important to hit that date. That way engineers can access if that can be hit and work with marketing about what features can be removed in order to hit that date.
Neither marketing or engineering should set dates for each others but external realities have to be accounted for in both.
Computer modeling for biotech drug manufacturing is HARD!
Have you ever found something, particularly something released years ago, and said "How the hell did I never hear of this?" Well that right there is a failure of marketing. There was something you would have been interested in, but you didn't know that it was out there for you to buy. Things don't just magically spread word-of-mouth. Sometimes it happens, you get lucky and your item is real popular to talk about and everyone spreads it around. However more often, you have to go and make it known.
Also this Ask Slashdot is particularly stupid because he says "non-labour" when talking about expenses. So he means excluding all salaries. You know, the really big expenses. That is the really telling part of how much you spend on something. Salaries will almost always be by far the largest item.
For example I work for a university IT group for an engineering college. We have an annual capital budget, meaning money for computers, switches, that kind of thing of around $100,000. We have an annual salary budget of about $1,000,000. We spend literally around 10x on people as we do on things. It is also fairly expensive when it comes to things since computers need relatively frequent replacement, you usually only get 5-7 years out of them.
That also doesn't pay for a ton of people. That is maybe 9 staff and 10-15 of students.
People are expensive, at least if you want good people and you want to pay them a fair wage. $10,000 gets you a pretty nice Dell server that you can stack a ton of VMs on and it'll last you for a number of years. $10,000 also pays a fraction of one person's salary for a single year. Easy to see why things get stacked in the people direction.
Also more people, more labour, is usually what you need to make something better, to have better service. I mean thinks if you are writing a program, what helps more: An additional server, or an additional coder? I'm not saying the capital equipment is unnecessary, but the expense will be way less.
Very annoying that a bunch of computer programmers are posting here who know nothing about engineering!
Prove anything by multiplying Huge Number times Tiny Number
So then it follows that they have no marketers and an unknown but non-zero number of engineers?
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The discussion is related to the phenomenon experienced by new consultants. After a successful technical career, someone launches his or her own consulting business and very soon comes to realize that 90% of the job is marketing. You might be the best tech person around but without contracts / engagements, you starve.
Well technically if you have marketing but no engineering then your ratio is infinite because you are dividing by zero.
That's the most efficient business model. Companies like HP for example are laying off or selling their research and development teams focusing on the spam and telemarketing. Senior management collects their bonus for making the company more effective. When perfected, you're left with an imaginary company.
Well, the way I see it, a good engineering department can typically shave 5% - 10% off the cost it takes to make some widget.
A good marketing department can simply convince customers to spend 100% more on the product.
So which might have the higher ROI?