The Commercial Ratio (CR) was developed in private equity (PE) and venture capital (VC) circles as a metric to evaluate the efficiency of marketing and sales spend. It’s calculated by dividing revenue growth in a specific period by marketing and sales spend over the same period.
For example, if sales growth in the year is $1 million and $1 million was spent on marketing and sales, the commercial ratio is 1 – and there was a return on investment (ROI) of zero. A CR greater than 1 implies there is a positive return on spend while a CR less than 1, or even negative, implies a firm is better off spending zero on marketing and sales.
OK…fair enough. The CR provides a high-level view to the impacts of marketing and sales spend.
However, the CR is incomplete and unnecessary.
Take a listen to episode 61 of the Inside: Sales Enablement podcast to hear the debate: