Growth Costs—So what about Sales and Marketing? Here lies one of the biggest differences between traditional and subscription businesses. In a traditional business, the cost of sales reflects how much I spent to get that dollar of revenue. But in a subscription business, sales and marketing expenses are matched to future revenue. Why? Because the sales and marketing I spent this quarter adds to the ARR, but the revenue I will see from that ARR growth will come in future quarters. In traditional accounting lingo, your sales and marketing now acts more like a “capital expenditure,” or capex.
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