Investing in Customer Capital

Firms invest heavily in customer capital, and such investment is a main source of intangible capital value. Investment in customer capital is measured using sales and marketing expense from income statements, information on salaries paid to workers in sales and marketing, and text from annual 10-K SEC filings describing firms’ sales and marketing strategies. There is large and persistent variation across industries in customer capital investment; industries investing the most are growing as a share of aggregate enterprise value. Industry-level variation in sales and marketing expense and R&D expense explains a large amount of the variation in the value of intangible capital, a result shown using both publicly-traded companies and prices paid in acquisitions. In contrast, the residual portion of sales, general and administrative expenses – after subtracting sales and marketing expenses – is uncorrelated with intangible capital value across industries. Industries focused on platform business models, online sales, and the production of high tech manufactured goods invest most heavily in customer capital.