Every CFO conference that I’ve been to in the past 5 years stressed the emergence of the CFO as a strategic leader of the company. Study after study affirms that today’s CEOs expect CFOs, especially in the tech sector, play a strategic role driving company growth rather than just accounting for past performance and policing company spending. And, now G&A expenses are increasing for SaaS companies.
For SaaS companies, it is required that the CFO be a strategic leader, deliver one source of truth for all the myriad levers driving the SaaS model and accurately predict the company’s financial performance, customer acquisition and retention. In addition, they must precisely forecast cash flows, provide unit economics analysis, and do scenario planning with different variables. At the same time, CFOs are expected to diagnose issues and operational weaknesses across the company while delivering the data analysis to change problem areas. Today’s CFOs typically need to either control or have access to all the company’s business systems and produce one source of one truth on the company’s current and future path – translated, that means a lot of work to get at one source of truth.
But Does It Cost More to Deliver More?
In all of these discussions, I’ve never heard mention that this might cost more and require more headcount in typical G&A cost centers like Finance or FP&A. In general, most CFOs are loath to spend when they are holding down expenses for the rest of the company. But has spending changed as the requirements have changed?
We looked at G&A expenses over the past 15 years for both software companies in general and for pure SaaS companies over the past 5-6 years to see if there is any increase in G&A expenses and if there is any association with revenue growth rates.
Separating traditional software companies into 3 revenue size buckets shows that G&A expenses as a % of revenue goes down as revenues go up, which most everyone would expect. For the two groups of companies in the $100M to $$1B and the over $1B range, G&A spending as a ratio of revenue hasn’t changed much since 2005.
The group of traditional software companies under $100M, though, have seen G&A ratios go up dramatically as of 2015. The data for these companies which have remained under $100M in revenues for the past 15 years reflects an unusual situation of stalled growth and should be considered outliers for traditional software companies as a whole.
We compared the traditional software companies to 47 public pure SaaS companies. In general, SaaS G&A expense ratios for 2010 and 2015 is higher than traditional software. Mid-sized SaaS companies median G&A spend was 18.1% in FY 2015 as compared to 11.4% for traditional software companies in this revenue range.
There is only one SaaS company in the over $1B group – SalesForce – with almost double the G&A spending of traditional software companies like Microsoft and Oracle.
Next, we took a group of recent SaaS IPOs and looked at their individual G&A spend in 2015.
Average G&A spend for this group was 21.4% with HortonWorks leading the pack at 38.3%.
Member-based Annual Software and SaaS Benchmarking – 2016
We are currently benchmarking member companies for 2016 as we have for the past 10 years. G&A expense for private and public software and SaaS companies, G&A headcount and cost center expenses are included.
Contact us if you’d like to see more.
Free Expense Allocations Survey
We are also currently running a survey through May 20 to understand and share information with our benchmarking community about how companies are allocating expenses, particularly in G&A. We developed the survey together with the Finance group at Castlight Health. If you’d like to see the results and are in a software or SaaS company, take the survey and we’ll send you the results.