How Much Should a Device Company Spend on Sales?

In the first years, expect to spend more than you bring in. I have not seen a device company cash-flow its sales and marketing in the first three years of a US launch. Even the successful ones spent more than a dollar for every revenue dollar. What separates a healthy launch from a broken one is the trend.

What ratio is normal in the first years?

When I look at device companies that exited successfully, sales and marketing spend against revenue ran anywhere from about 3.5 to 1 down to about 1.3 to 1. The first year is always the most expensive. In the second and third years, the ratio tends to drop.

Those were the companies that exited well. So if your ratio is above one in the early years, that alone doesn't mean something is wrong.

What matters is direction. A high ratio in year one that falls each year as accounts adopt and reorder is a launch working as planned. A ratio that stays high while you keep adding people is a warning.

How do I turn that into a budget and a raise?

Work backward from the revenue goal. If your goal is $5 million in revenue, plan to spend at least $5 million, if not $7 million, to make that $5 million over your first two to three years. That is a ratio of roughly 1.3 to 1.5 to 1.

The same logic works for a smaller first year. If your first-year goal is $1 million, you should think about raising roughly $1.5 million to $1.6 million to create it. Founders who plan for a one-to-one ratio in year one usually run out of money before the ratio has time to improve.

What does a broken ratio look like?

The warning sign is a sales organization sized for the business you hope to have, not the one you have. Picture a team of reps on guaranteed salaries, each one a fixed cost every month, while orders trickle in from a handful of accounts. The monthly cost of the team is many times the monthly revenue, and it doesn't shrink when sales are slow.

That is not a launch that needs more time. That is a model that needs to change. The problem usually isn't the product or the market. It is a fixed cost base built ahead of demand. When I see it, my advice is to cut to a small core: a few reps and one leader, focused on where the business is actually coming from.

How do I cut back without killing the launch?

Find where the units are actually selling. In most struggling launches, it is a small number of accounts. Keep a small team on those accounts so the revenue keeps moving, stop the rest, and regroup. Then rebuild market by market, based on data instead of hope.

Before you cut, look at those accounts closely. Which ones reorder? Which physicians use the product every week? That is where your small team stays, and those accounts become the model for the next market you open.

It feels drastic, but the alternative is worse. As I like to say, revenue is your oxygen. Without it, you will die. A smaller team that sells keeps you alive long enough to fix the plan.

Where should I start?

• Calculate your sales and marketing spend per revenue dollar for each of the last twelve months.
• Compare it with your plan and with the ranges above.
• Check the direction. It should be falling as accounts adopt and reorder.
• Set a trigger in advance: if the ratio isn't improving by a set month, you cut back to the accounts that sell.