Using BenchmarkEngine™ to help SaaS Companies Invest, Lead, and Manage with Confidence
VelocityEHS® is one of the largest and fastest growing providers of cloud-based environmental, health, safety (EHS), and environmental, social, and corporate governance (ESG) solutions in North America, serving a variety of industries including manufacturing, chemicals, food, and beverage, pharmaceuticals and biotechnology. VelocityEHS® is a company that has propelled its growth through a relevant and timely focus, a clear vision and mission, and precision execution.
“Several years ago, we struggled to find industry metrics beyond public comps that are often difficult to apply for smaller, private companies,” explains Doug States, Chief Accounting Officer of VelocityEHS®. “When we happened to come across BenchmarkEngine™, there was a clear benefit of being able to compare ourselves with other SaaS players especially at a more granular level than through other sources.”
Navigating the Balance between Growth and Investment
There is always a balance between growth and profitability. The importance of strong benchmarks for business validation is critical especially when you are institutionally backed. “Growth requires investment in the short term and therefore the sacrifice of profits. Most often the highest top-line growth performers are the lowest performers in profitability and vice versa – thereby the balancing act,” says States “Benchmarking allows us to see how other similar SaaS companies balance the goal of maximizing growth and profits. Benchmarking anchors us in the long view of how we should think and operate our business.”
As the focal point of those growth and investment conversations, States explains that if you are advocating for more investment to achieve growth, having access to the right benchmarks can add credibility to your position being anchored in the math of the market participants. “That has probably been our single biggest benefit in using BenchmarkEngine™.”
Adding Credibility to M&A Projections
Beyond contextualizing growth and investment decisions, VelocityEHS also draws on BenchmarkEngine™ to accurately gauge the value of its acquisitions. “We use benchmarks to anchor the realism of our projections associated with our acquisitions,” says States. “It is especially useful when acquiring a smaller target. We often forget our own journey from small to our current size. The ability to benchmark smaller companies adds credibility to our projections not only for our own valuation purposes but also with our 3rd party valuation experts who assist us in our purchase price allocations for GAAP purposes. BenchmarkEngine™ gives us access to a wide range of market participants’ key financial statistics across multiple growth stages to assist us in building our target offer and allocating the purchase price after we have completed the acquisition.”
An Anchor for Casting into the Unknown
States’ use of BenchmarkEngine™ at VelocityEHS isn’t limited to these applications alone, however. “I think a substantial benchmarking benefit for us is having some sort of an anchor to ground our thoughts when we go off into unknown territory and start something entirely new—whether a new product or initiative. How much should we be spending in a particular area as a percentage of our total spend and/or as a percentage of sales? Having a benchmark is a flag post that provides us with an end in mind over time. The platform gives us the building blocks and framework to think and speak internally with key decision makers about how our investments should look over time.”
Among the company’s various scheduled and impromptu uses of the platform is its annual planning process each July and benchmarking of its various spends as a percentage of its top line, revenue per head, and utilization rates. “I can’t think of a better tool to utilize, because it’s a software platform that you can log in to and see in real-time—without digging through your email for a report while second-guessing the contents’ relevance to you. Just knowing the data is available to me is quite helpful.” For other would-be SaaS benchmarkers, he adds, “Don’t just do it just as a one-time budget exercise. Incorporating the benchmarks into your monthly or quarterly reporting is beneficial because it continually anchors your business against the benchmark.”
Schedule a quick walk-through of BenchmarkEngine™ with OPEXEngine expert Donna Rice.