LinkedIn Marketing Costs Are Nearly Third of Revenue

Outlays are expected to increase

The cost of generating revenue at LinkedIn has risen in almost every year since 2006 and reached a "worrying" level of 31 percent of net revenue in the first quarter of this year, according to a new analysis from Marketing Services Financial Intelligence.

Nevertheless, the professional networking site, which went public on May 19th, plans to increase the proportion it spends on future sales and marketing. According to its IPO prospectus, LinkedIn's sales and marketing costs amounted to 15.8 percent of net revenue in 2006 and that amount had increased to 24.3 percent by 2010.

"Normally the reverse of that trend might be expected as the marketing investment resulted in more customer loyalty as well as more customers," said Bob Willott, editor of Marketing Services Financial Intelligence.

But in its prospectus, LinkedIn said: "We expect sales and marketing expenses to increase on an absolute basis and as a percentage of revenue and to be our largest expense on an absolute basis and as a percentage of revenue."

Commenting on that increase, Willott said "The figures from LinkedIn suggest it may be having to spend more and more money to generate and keep its paying customers or, worse still, to replace disappointed customers with others."

As the valuation debate continued about LinkedIn’s stock market debut, the site’s shares took a hit yesterday. The stock closed 5.15 percent lower at $88.30 a share after being off by as much as 10 percent earlier in the day.