In an increasingly data-driven world, a surplus of conventional wisdom and “generally accepted benchmarks” constantly bombard SaaS company executives.  When performance benchmarks are used correctly, there is a tremendous value creation opportunity which starts and ends with precision cohorts.

In today’s market, the path to growth for B2B SaaS companies is to continue following the two SaaS lodestars:  customer acquisition and customer retention.  The companies that successfully navigated through various market disruptions, including the recession in 2008, continued growing by diagnosing whether their acquisition and retention investments were efficient. That means focusing on KPIs […]

R&D is the backbone of any SaaS company, yet to many CFOs, it is still a black box.  Most companies track R&D as a % of revenue, and maybe a few metrics about activity, but few CFOs can answer the question of what’s the ROI on their R&D investment.  Perhaps even more importantly, what are […]

Two accounts have identical twelve-month contracts except for the payment terms, how should you calculate the payback period? Read this guest post to learn why there is a need for two metrics to exist – a cash-flow-based months-to-repay and an accrual accounting metric.

Effective and strategic CFOs incorporate accurate benchmarking into the daily business of the company and especially into the budgeting and planning process. Benchmarks provide context for initial budgeting drafts and provide guide rails for managers to use in forecasting their needs for the upcoming year.

In August 2020, Zenefits CEO Jay Fulcher posted on LinkedIn, saying, “Success takes work, study, time, grit, courage, experimentation, resilience, and a belief in yourself that may not always be steady but never goes completely away … there are no shortcuts.” Garnering nearly 1 million views, 14,000 likes, and more than 1,100 comments, his message […]

It’s common to design a SaaS renewal process that starts about 90 days before the date of renewal. It’s common, but that doesn’t make it right, does it? A great, proactive SaaS renewal process really starts the day the customer signs up. And renewal is just really one huge part of the overall initiative to retain customers. Let’s start with […]

SaaS customer onboarding is critical—it’s really where the customer relationship is won or lost. There is a ton of great customer success information out there—but nothing that’s “block and tackle” specific, like an actual on-boarding cadence example. The key to great customer onboarding is pro-active communication and collaboration inside your organization and with your customer.

Should you pursue growth at all costs, or is it more important to make sure that your margins are healthy, and that you’re not losing money with each new customer that you bring on board?

You hear the terms SaaS, subscription, term licenses and perpetual license software tossed around frequently.  The terms aren’t universally understood, nor are the implications of each on the financial model of a company, so the following is an effort to provide an overview. At OPEXEngine, we pull apart the different nuances of each business model […]

Last week we published the most recent SaaS & Software benchmarks in our platform used by companies in their FP&A analyses for management, boards and investors. We’ve also added more filters by more granular break-outs of revenue, revenue growth rates and Average Contract Value, plus a filter for EBITDA, to help companies better compare themselves […]

I have a bit of a love/hate relationship with the freemium model. Done right, freemium can lead to amazing success. One of the best examples is Dropbox, which Tomasz Tunguz called the “King of Freemium”. What makes the company unique, he argues, is how it transformed its free users into evangelists. “Unlike other SaaS companies, Dropbox […]

How analytics can guide companies from insight to action. Beyond generating insights, leading sales and marketing groups deploy analytics to prescribe specific actions that raise the odds of closing or expanding deals. Prescriptive analytics frequently takes three forms: guided marketing, guided selling and guided pricing. These forms of guidance all hinge on the organization having […]

Downward trending cost of goods (COGs) benchmarks are improving SaaS gross margins.  Competitive service offerings and new technologies are driving down costs to maintain SaaS infrastructures. As SaaS gross margins are rising, investors are becoming a bit more savvy about gross margin analysis, with increasing scrutiny of SaaS financials, especially in the wake of the […]

The typical SaaS company grows faster, loses more money, and has a higher valuation than product sale companies. Weighted Average Profitability Cash Flow from Operations Growth Price/Revenue Ratio Public SaaS Companies -8% +15% 33% 8.7x Public Software Companies +8% +28% 8% 3.3x Source: SEC filings – weighted average by company revenue Many factors drive the […]

If there’s one thing a finance professional can do forever, it’s analyze stuff. We’re never short of data to analyze, and there are always more details to be ironed out. We love analyzing stuff so much that we almost forget the purpose of doing the analysis. The purpose is to improve business performance through improved decision-making. That […]

One SaaS metric we monitor closely is net dollar retention.  It tells you what percent of revenue from current customers you retained from the prior year, after accounting for upgrades, downgrades, and churn.  Formulaically it’s beginning of period revenue + upgrades – downgrades – churn all divided by beginning of period revenue.   If that formula […]

In the many years I’ve worked with SaaS companies, I continue to observe a surprising lack of standardization of SaaS metrics and performance reporting. My experience reinforces the fact that SaaS business model variants and approaches to measuring performance via metrics are still very much undefined. This is true even though selling software on a […]

Cash efficiency is one of our favorite metrics in SaaS. Measured as recurring revenue in the latest year / equity + debt invested, it’s every bit as important as growth. We did an analysis looking at the revenue, equity, and debt of 88 publicly traded SaaS companies at the time they went public. Using the […]

During the annual budget and planning process, SaaS Finance leaders focus on making sure that resources are allocated appropriately across the company so the company achieves its performance goals – usually revenue and profitability goals – for the upcoming year.   Resource allocations should be fine-tuned by looking at how the Return on Investment (ROI) can […]

Heading into the 2020 planning season, SaaS FP&A teams are working to finalize 2020 budgets and planning. Over the past decade benchmarking software and SaaS companies, I’ve had the chance at OPEXEngine to work with hundreds of amazing Finance execs who work incredibly hard at getting the right data to support their company’s goals.  I’ve […]

As the close of 2019 approaches, with extreme stock market volatility and mixed economic signals, SaaS Finance execs building plans for 2020 and 2-5 years beyond don’t have an easy time.  What assumptions should you use among conflicting signals about economic and market growth over the next few years? Experts are fairly consistent that global […]

Eighty percent of economic profit created by companies globally comes from 20% of the companies. Yes, the Pareto principle applies here too! What’s the secret sauce for becoming one of the 20%? The bad news? There is indeed a sauce and a recipe for how to make it. The good news? The recipe is not […]

SaaS gross margins have been getting attention lately as investors dig into SaaS cost structures and revenue growth rates going into 2020. Gross margin is simply revenue minus cost of revenue, expressed as a percent.  Gross margin shows what is left over after you deliver your products and services.  SaaS cost of revenue is comprised […]

This article originally appeared on HBR.org. From targeted online advertising to more precise recommendation engines, consumer markets are bursting with innovation around machine learning and advanced analytics. While there’s less buzz around business-to-business markets, these innovations are changing the game in B2B as well, even in old-line industries selling what might be considered commodity products. A […]

WeWork, a so-called tech company, just pulled its IPO, and a couple of recent high-flying IPOs – Peleton, Uber, Lyft – are trading below their opening prices.  Given market jitters about the economy, very high valuations of some private tech companies, and the massive $s invested by VCs and PE firms in the sector, it’s […]

We often get questions from SaaS companies about GAAP versus non-GAAP expenses, and whether the benchmarks for expenses are distorted by GAAP accounting.  According to GAAP, expenses typically include charges, like stock option expense and other SaaS expense benchmarks which may be associated with acquisitions, and aren’t necessarily relevant to operational budgeting and planning.    GAAP […]

When it comes to FP&A forecasting, most companies base their long-range forecasts on static planning processes, rather than more relevant, dynamic plans that reflect the complexities of the business. Relying on a forecast that doesn’t enable continuous monitoring of company performance, instead of implementing a modern, rolling forecast approach, is like using an old-school road map to guide you […]

Traditional software companies – and most tech companies in general –  are building Software-as-a-Service (SaaS) businesses.  Enterprise SaaS revenue is hitting the $100B run rate, according to Synergy Research in its most recent report.  That’s still only 20% of the total enterprise software market, but it’s growing quickly. An increasing number of customers demand the […]

“When you go B-2-B, it’s extremely important you start with the benchmarks. When looking at performance, you start with the best parts of sales and marketing to revenue and then you look at the mix of sales and marketing as percent of total sales and marketing and then you look at your performance versus benchmark, […]

In our engagements at FLG Partners, we often encounter situations in which companies default to systems to try to improve their business processes. Unfortunately, this approach can give a management team a false sense of security and almost always results in performance below expectations. At FLG, we typically find that process gaps are underestimated by […]

Cloud channel strategies have evolved significantly over the past 20 years. Today there are a variety of SaaS channel sales models that companies have leveraged to exponentially increase sales and their potential customer base.

Over the years, I have become a “data hound” looking for every morsel of wisdom I can ge to help me make smarter decisions. The good news here: accurate data is king. You can’t effectively manage your business without accurate data. Getting it is not always easy but without it you risk making the wrong business decisions […]

Long-time readers of our work may recall we have strived to shed a light on the opaque, confusing, and volatile practice of valuing private SaaS companies. As we near the mid-point of 2019, we thought it would be good to check on current private company valuation multiples. SaaS Capital is in a unique position to […]

In looking at this issue across several companies, I’ve noticed a disturbing trend / missed opportunity in how many SaaS companies classify the reason for customer churn.  Roughly speaking, if companies were hospitals, they’d too frequently be reporting the cause of death as “stopped breathing.” Yes, the patient who died stopped breathing; the question is […]

What does it take to achieve extraordinary SaaS B2B valuation multiples?  A big market and performance indicators showing that the company can acquire customers at a fast pace. In addition, it is valuable to show that your company can support/maintain customers with a low cost of revenue.  Even better when your metrics show gains in […]

Average Contract Value is (“ACV”) is a vanity metric that should be looked at as part of a group of ratios that include number of qualified leads, close ratio, sales cycle, and other critical sales metrics. It shouldn’t be put on a pedestal. Here is why: The world’s biggest and best software companies tend to […]

In this week’s 2019 State of the Internet presentation, Mary Meeker, the Midas List Kleiner Perkins/Bond Capital partner behind Spotify, Dropbox, Instacart, Slack, Square, Airbnb and Houzz, as well as Facebook and Twitter, captured how the internet is transforming the consumer and enterprise world, and even the political and regulatory sphere.   Given at Vox/Recode’s Code […]

Everyone loves recurring revenue and rightly so: it’s far more valuable than one-time revenue to VC and acquirers.  But, don’t forsake one-time revenue.  Whether it’s for services, onboarding, licensing, or some other one-time event, revenue of this type is incredibly valuable especially at early stages.   There are three big reasons it’s valuable: It’s a Source […]

Great SaaS companies grow fast and have great products.  Top line growth is the number one priority for most SaaS companies, but what about R&D (Research & Development)? You can’t have fast growth without great products, but often, the link between product development and revenue growth isn’t clear. How do you know if you are getting […]

This week, we announced a strategic relationship with Bain Consulting.  Bain is using our benchmarks with their strategic consulting to help clients better understand how they compare to peers and market leaders, and where they can improve.  Data plus insights makes the analysis concrete and actionable.  Our decade long benchmarking of software and SaaS companies […]

Back in 2014, I wrote a post titled “Five ways to build a $100 million business”. If you haven’t seen it yet, the central idea of the article was to look at how many customers you need, for a given ARPA, to get to $100 million in annual revenue and what this might mean for […]

We had a great discussion with Andrew Setness, VP Finance at DialSource this week on evolving the Finance organization as a SaaS company grows.  We talked about the processes, metrics and systems that change as a company goes from a Series A, to B, to C and beyond. Andrew, based in Sacramento, CA, highlighted that […]

I’m a huge practitioner of data-driven SaaS management. I believe that almost everything in a SaaS business can and should be measured. But there are two important caveats to measurement that I’ve recently seen overlooked. First, the data you use for KPIs or OKRs must be understood by your teams. And second, it must have […]

PagerDuty was founded in 2009 by 3 former Amazon engineers who were often on-call. To engineers, being on call means carrying a pager to respond to crises when software breaks or services go down. In the 10 years since that day, PagerDuty has built an exceptional business. Their product has evolved from on-call management, which […]

PagerDuty was founded in 2009 by 3 former Amazon engineers who were often on-call. To engineers, being on call means carrying a pager to respond to crises when software breaks or services go down. In the 10 years since that day, PagerDuty has built an exceptional business. Their product has evolved from on-call management, which […]

Anna and I are about a year into our SaaSX and Beacon9 stories and about 15 months removed from the acquisition of our SaaS company. We worked with some amazing recurring revenue SaaS companies in 2018. Our journey, our clients, and the new year have caused me to reflect on our mission to help SaaS […]

By 2020, more than 80 percent of software providers will change their business models from “traditional” perpetual license and maintenance to subscription-based models. A perpetual model requires customers to pay a fee upfront to purchase a license for the system or application, whereas a SaaS model requires a monthly subscription fee. While some providers, such […]

This post won’t save your life, or your company.  But it might save you a few precious hours at 2:00 AM if you’re working on your company’s SaaS metrics and can’t foot your quarterly and annual churn rates while preparing a board or investor deck. The generic issue is a lot of SaaS metrics gurus […]

A few days ago I wrote that there’s more than one path to $100 million. I argued that while it’s awesome to see that some companies are able to get from 0 to $100 million in ARR in 7-8 years or even less, trying to grow that fast may not be the best choice for […]

“If you need more revenue, invest in Sales.” Why is that the default—some might say “kneejerk”—response to the basic question of how to make more money? One of the reasons Sales is such an obvious economic driver for companies is because its core Key Performance Indicator (KPI) is meaningful and well-defined: bookings. But for businesses […]

Driving revenue and revenue growth is one of the most important factors in the financial performance of a SaaS business, so getting the sales and salesOps metrics right is critical. In fact, for 2019, this might be one of the most important financial benchmarks you should track. We had a great webinar with SaaSOptics and […]

The growing popularity of SaaS applications among end users, enterprise software buyers and investors creates tremendous pressure on traditional software providers to offer subscription versions of their applications. The business case for moving to SaaS is so strong that this business model is projected to dominate all software sales in the near term. According to […]

When I first heard about the Lifetime Value (LTV) to Customer Acquisition Cost (CAC) metric many years ago, the economics major in me got very excited. I was already well into the SaaS financing business at the time, and this ratio seemed like the most elegant way to express how the business model really worked. […]

Every vendor, from early to enterprise stage, must have a laser focus on SaaS cash management in order to survive.  The lag times caused by the subscription payment model, PLUS the intense customer acquisition growth pressure in order to succeed in the market, makes cash burn tough to manage. In SaaS, spending cash usually comes […]

I think it would be hard to overemphasize the importance of upgrade and upsell strategy in SaaS product marketing. In an industry where free trials, freemium versions, bargain basement subscription prices and simply hoping to recover customer acquisition cost with first year revenue are the norm, few things are sweeter than a customer that actually […]

The OER (Operating Expense Ratio – ratio of operating expense to revenue) is a traditionally viewed as a measurement of efficiency. It can be translated to mean the dollars required to produce one dollar of revenue.  Typically, that dollar of operating expense was 90 percent payroll components. For early stage companies, the OER may be 3X.  […]

As many of you know, Red Rocket has been looking for businesses to buy.  We have previously written about all the challenges that come with buy-side mergers and acquisitions work.   But, there is a new wrinkle we have been running into, that is worth talking about.  Most businesses we have looked at were managed […]

You hear the terms SaaS, subscription, term licenses and perpetual license software tossed around frequently.  The terms aren’t universally understood, nor are the implications of each on the financial model of a company, so the following is an effort to provide an overview. At OPEXEngine, we pull apart the different nuances of each business model […]

Your sales team is starting to close some terrific accounts. As your startup grows, your sales team will experiment with different sales techniques. For example, qualification, pricing, positioning, incentives and contract structure. This is a wonderful phase for a startup. However, there’s a common mistake to avoid. Your VP of Finance should model the impact […]

Numbers provide us a certain certainty. With their precision, they offer a sense of black and white, in or out. But, data and benchmarks alone aren’t enough. All the quantitative analysis in the world won’t lead me to the next great idea for startup. Those figures can’t create empathy, develop the right culture, or hire […]

Over the last several years, many technologies have been developed to help accelerate and automate the sales and marketing functions. First, it was upper funnel tools that help drive customer awareness and consideration through marketing automation. Then came the middle and lower funnel tools that help drive customer evaluation and purchase through sales enablement tools, which I will […]

Fifteen years ago, software company financial plans followed standard guidelines about sales and marketing expense targets. Traditional software sales and marketing expense aimed for 22%-25% of revenue, maybe 28-30% if strong revenue growth warranted it.  Anything north of that required a really good explanation for why and how the numbers would be reduced.  SaaS financial […]

I have written many posts about the importance of determining your industry size for strategic planning or investor pitch purposes.  But, determining your industry size is not always easy, and more importantly, determining your total addressable market (which I will define later), is even more important and an even more nebulous calculation.  So, here is […]

In 2007, when OPEXEngine launched its first benchmarking of SaaS vendors, almost no SaaS companies in the data set were selling to end-user customers through a channel. Over a decade later, that statistic has changed dramatically. In the early days of SaaS, the idea was that subscription pricing did not allow a partner margin, so almost […]

Hiring and retaining skilled and productive employees in SaaS companies is an ongoing, competitive exercise.  Human assets are the biggest investment and a huge driver of SaaS company valuations – but a lot of organizations don’t check SaaS HR benchmarks regularly or keep it in front of management the way they do customer lifetime value, […]

Recently, people have been asking just where are we in the SaaS valuation cycle. I last updated the chart above more than six months ago. The answer is close to ten year highs. The chart above shows the median enterprise value to forward revenue multiple to multiple. Enterprise value is the market of a publicly […]

The SaaS IPO and M&A market is extraordinarily strong.  Venture and PE capital inflows to SaaS companies also continue to be strong. With the second half of 2018 approaching for most SaaS and software companies, it is time to review and tweak second half budgets and plans. Now is a great time to benchmark your KPIs […]

Company X is a fast-growth SaaS company, surpassed $20M ARR in 2017, and is on a plan to hit $35M ARR in 2018, and $50M ARR in 2019.  Their growth plan is based on: more enterprise customers; opening an office in Europe/UK and increasing European revenue to 15% of total revenue; and adding new functionality […]

Pricing in the SaaS world is particularly complicated. Pricing can make or break your SaaS company with its impact on both profitability and revenue growth – the two major indicators of company valuation. SaaS pricing is a fast-moving target and every SaaS CFO should be re-evaluating their company’s pricing on a regular basis.  As a […]

OpFocus recently met with fellow SaaS maven & long time friend, Lauren Kelley, who founded OPEXEngine a decade ago in Waltham, MA and built it into the premier Software as a Service SaaS benchmarking resource. Lauren’s held executive positions of her own in some of the industry’s most successful companies, and having advised hundreds of forward-thinking technology […]

One of the hottest trends in the evolving SaaS playbook is the influence of Account-Based Selling (ABS) and Account-Based Sales Development (ABSD). The Account-Based approach changes two important aspects of growing a SaaS company:  firstly, it changes business processes, and secondly, it changes organizational structures.  The focus is to pull together Marketing, Sales, Customer Success, […]

2017 was a banner growth year for SaaS companies, and particularly for SaaS vendors that went public over the past 12-18 months.  Based on OPEXEngine’s data feed of analyst revenue expectations for the next fiscal year filings, top performing SaaS companies’ annual revenue growth rates keep climbing and it appears as if they will beat […]

SaaS companies are all about fast revenue growth and great products.  Most discussions about SaaS models focus on Sales and Marketing – in fact we wrote a post about it last week, but what about R&D (Research & Development)? You can’t have fast growth without great products, so how do you measure SaaS R&D performance?  We […]

  We are frequently asked “how are companies allocating Customer Success expense” and where does the Customer Success organization sit among peer companies.  This issue often comes up among SaaS finance executives at the SaaS Finance Meet-UPS that OPEXEngine runs.  I’ll share some of what we’ve seen here.   We will continue to be working this evolving […]

On the last day of August, as we go into the final stretch of Q3 and 2016, SaaS valuations are evolving.  Benchmarking the financials and operating metrics that drive these valuations is what OPEXEngine, the member-based benchmarking community for SaaS companies, is all about. Forward multiples have rebounded for companies maintaining strong revenue growth at […]

About 3/4ths of Sales expense is spent on sales compensation. Companies have always spent huge amounts of time and resource fine tuning their sales structure and organization but in the SaaS world, it is even more complex.  SaaS companies have to compensate for recurring revenues, renewals, find the right mix of incentives, targets and sales […]

There are millions, okay, hundreds, of benchmarks floating around these days.  Sales productivity should be a, b or c funnel conversion rates are typically such and such a percent, or churn rates have to be no more than x or your company is in big trouble.  Whatever the metric, someone has a definitive answer for […]

If a company can sell 1.5 deals in the time it previously took to sell one deal, you have 50% more revenue.  All other things being equal (ie., you don’t increase churn, increase discounting, etc), if you tighten up your sales cycle, you’ll increase revenue. There’s a fair amount written on SaaS sales cycle lengths […]

Tech companies are all about innovation – how obvious is that?  And how well you run your R&D innovation and processes is a major determining factor in a company’s success, no more so than in the fast moving world of SaaS technology.  No matter how good your Sales and Marketing functions are, they need to […]

Annual Study Finds Private Software Industry and SaaS Firms Seeing Strong Growth,  More Hiring and Significant Venture Capital Flow. One year after reporting that private U.S. software companies saw the largest revenue gains since the recession of 2008, the 2015 Software & SaaS Industry and Benchmarking Report shows even greater acceleration in topline growth. Announced today, […]

Even a 1% improvement in renewals can drive significantly higher valuations for a SaaS company over time

The social media world and business advisory firms, consultants and other pundits keep alerting businesses that the objective of return on investment (ROI) is diminishing in importance, or even dead, due to the increasing focus on return on user experience (ROE or ROX). We asked three experts to share their advice on ROI versus ROE as […]

After 8 years working with hundreds of SaaS and software companies (and about 60% of the SaaS IPOs over the past 5 years), one of the key ways that growth companies use our benchmarking data and services is for planning and budgeting. Planning and Budgeting Almost all of our clients use benchmarking to plan their […]

Professional services for many SaaS companies have become an important way to on-board customers, keep customers satisfied with the product and using more features of an application or service, making it stickier.  As one CFO recently said, professional services are definitely a churn-reducer.  SaaS companies, particularly high growth, venture-backed firms, are pricing professional services as […]

Tracking performance metrics like monthly recurring revenues (MRR) and contracted monthly recurring revenues (CMRR), customer acquisition costs (CAC), renewal or churn rates, and customer lifetime value rate (CLV) is critical for driving growth at successful SaaS companies.  None of these metrics are GAAP metrics, though, and there is no auditing of the numbers.  Many companies […]

Security and performance investments, among other items, are driving up Cost of Revenue for SaaS growth companies. The ultimate goal of a subscription business model is to reduce the cost per subscriber and increase profitability. That does not mean, however, that cost ratios follow a smooth downward trend as revenues grow. 10 years after Salesforce.com went […]

Good news for sales and marketing executives defending their budgets if they are planning on going public soon: The total amount of money in the sales and marketing budget probably isn’t going to be questioned too much. That doesn’t mean that how they spend their money isn’t going to be questioned, or the effectiveness of […]

Fast-growing software and SaaS companies don’t navigate their growth by luck. Successful companies today are intensely metrics driven and constantly compare their performance to peers and market. Have you ever felt that critical executive or board-level decisions about sales spend, performance targets and other business drivers are based on anecdotes and emotion more than data? […]

We’ve been tracking COCA for SaaS companies for about 5 years now.  We use the metric to calculate benchmarks for customer acquisition expense by size of company, and by type of product offering, ie., whether a company is selling a low cost solution or a relatively high cost solution.  We incorporate COCA into other benchmarks […]

I thought it would be worthwhile to publish an interview I did earlier this year with Mike Morgan, CFO of Bomgar Corporation talking about benchmarking value and how it has worked for them.  Bomgar is a venture-backed, mid-sized software vendor which has ranked in the Deloitte Technology Fast 500 for the past 4 years.  With […]