This article originally appeared in the Human Infrastructure Magazine, a free bi-weekly newsletter from the Packet Pushers. You can sign up and find back issues here.
A 3Q16 financial report from Palo Alto Networks (PAN) showed that PAN is spending more than 50% of its revenue in sales:
Product Revenue: $345 Million
Sales & Marketing: $202 Million
So I took a look at Cisco’s cost of sales as a comparison because PAN’s number seemed high.
Product Revenue: $11.9 Billion
Sales & Marketing: $2.2 Billion
What This Means To You
Why should you care how much a company spends on sales? Because the actual cost of selling products is paid for by the customer in the price of the product. We can extrapolate that 20-40% of a product’s price is the cost of selling it.
Man, those sales grunts and pre-sales engineers are costing you a lot.
Reading Those Tea Leaves
As a network architect, I look at company numbers to evaluate the company’s focus and long-term position. From this information I conclude that PAN has a lot of extra resources as they bet heavily on growing the business. If they are successful, then the head count will stay as is. If there is a drop in IT security spending, PAN would have to shrink.
Cisco is a mature, non-growth business. Its sales expenses of 20% of revenue is still very high compared to other markets, but has been steadily decreasing (down $200MM since this time last year). Cisco is cutting back on sales/marketing.
So one question to think about: Would this affect my ownership of their product?
- If my vendor drops sales engineers, would that affect my projects?
- Am I depending on the sales team to support my deployment?
- Do I need to hire people to replace those lost resources, and how do I recover that cost from vendors?
The Price of Sales
This discussion doesn’t include distributor/reseller profits. Every company on the food chain adds about 10-15% to the product price.
As an observation, I wonder why we still rely on using humans instead of simply buying these products from Amazon or Walmart Online. It would be a much more efficient use of project time to simply buy from the Web and avoid endless purchasing meetings.
How much is that “free sales support” really worth?
A Whitebox/Whitebrand Angle
Avoiding sales cost is clearly a big part of the price differential of whitebox switches. If you look at whitebrand/britebox, you’ll notice the 30-50% markup that is the “expense of sales” cost.
The Internet Removes Middlemen
The Internet has a way of removing middlemen companies. Amazon replaced retail sales costs and also removed warehousing & distribution. Could the Internet replace resellers and sales people in IT infrastructure?
I wouldn’t be surprised. The more we move to converged & hyperconverged systems, the simpler the buying process becomes as the decision shrinks to “small, medium or large, and would you like fries with that?”