Previous research shows that corporations allocate significant resources to intangible capital: non-physical assets that contribute to a firm’s value, such as brand reputation, intellectual property, and customer relationships —assets such as brand reputation, intellectual property, and customer loyalty. Intangible capital shapes key economic outcomes such as investment, profits, employee compensation, and productivity, making it critical to accurately measure and understand. In this paper, the authors focus on customer capital, a major component of intangible capital, and provide comprehensive measures of investment in customer capital: a component of intangible capital representing investments in building and maintaining customer relationships, including sales, marketing, and customer data as well as explore its determinants and effects.
The authors measure investments in customer capital using three data sources. First, they analyze spending on marketing and sales as reported in corporate income statements. Second, they estimate salaries paid to sales and marketing employees based on data from job postings. Third, they examine firms’ SEC filings, which often detail investments in customer capital. Together, these data sources enable the authors to construct a comprehensive dataset on customer capital investments by publicly traded firms in the United States from 2007 to 2022. The data reveal the following concerning consumer capital:
- On average, publicly traded firms spend 4.1% of their revenue on sales and marketing. This amount is higher than expenditures on research and development (R&D) and about two-thirds of capital expenditures. While previous research has mainly focused on advertising to measure investments in customer capital, the authors find that advertising often accounts for only a small part of this spending. Notably, 16% of annual firm records highlight advertising in their business descriptions, and it is more common for firms to focus on efforts like maintaining strong customer service (51%), building a sales force (49%), enhancing brand value (48%), and leveraging customer data (28%).
- There is significant variation across industries in investment in customer capital. Firms in agriculture, mining, and petroleum or coal product manufacturing spend little to nothing on sales and marketing. In contrast, the median firm in the information industry—such as software companies, digital platforms, and web search portals—spends over 20% of its revenue. Professional service firms and high-tech manufacturers, including those making medical devices and computer equipment, also invest heavily in customer capital.
The authors confirm that the observed variation in industry-level investment in customer capital remains consistent over time and across measurement methods. This consistency suggests that the variation arises from fundamental differences in how industries generate revenue and profit. Motivated by this, the authors analyze the determinants and implications of this industry-level variation.
- Three factors explain 70% of the variation in investment in customer capital across industries. First, platform business models, where firms act as intermediaries connecting buyers and sellers (e.g., eBay, Uber, Zillow), are the most significant driver, with such firms typically spending over 20% of their revenue on sales and marketing. Second, industries where firms sell products online invest heavily in customer capital, focusing on acquiring and leveraging customer data alongside brand building. Third, industries producing technical products—indicated by higher salaries for engineers—allocate substantial resources to customer capital, reflecting the need to support complex product sales with skilled teams and specialized marketing.
- The channels through which industries invest in customer capital differ based on their business models and target markets. Industries that primarily target households focus heavily on advertising and building brand value. Industries that sell technical products prioritize developing and maintaining a strong sales force to guide customers through complex purchase decisions. Online-focused industries emphasize customer data acquisition and management, often paired with efforts to strengthen brand value. Platform-based industries, such as those facilitating digital marketplaces, invest across all channels—advertising, brand value, customer service, sales force, and customer data.
- Turning to the implications of investing in customer capital, the authors find that industries with the largest investments in customer capital experience the greatest increases in the share of revenue and enterprise value: a measure of a company’s total value, calculated as the market value of equity plus debt, minus cash, representing its overall worth to investors over the authors’ sample period.
- Industry-level differences in customer capital investment explain much of the variation in intangible capital value across industries. Industries that invest more in customer capital relative to their revenue have higher enterprise value compared to their physical assets ( QPH: (enterprise value to physical capital ratio) a metric assessing how much value a firm generates relative to its tangible (physical) assets ). Similarly, R&D spending is strongly linked to higher intangible capital value. In contrast, residual sales, general, and administrative expenses, excluding customer capital, show no correlation with intangible capital value, highlighting the unique role of customer capital and R&D in driving value.
- Customer capital is also crucial in firm acquisitions, with higher investments linked to greater valuations of intangible assets such as brands, customer lists, and relationships. While R&D expenses primarily drive the value of other intangible assets like research and technology, residual sales, general, and administrative expenses expenses (excluding customer capital-related components) show no correlation with valuations in acquisitions.
This study highlights that spending on sales and marketing should be recognized as investment in customer capital, a critical driver of intangible asset value and firm growth. Industries that invest heavily in customer capital, such as those focused on platform business models, online sales, and high-tech manufacturing, are among the fastest-growing in revenue and enterprise value. Policymakers and researchers should prioritize better measurement and understanding of customer capital investment, as it plays a pivotal role in shaping economic outcomes across industries.