The private U.S. software industry is experiencing its biggest revenue gains since the recession, and both private and public companies are renewing their focus on investment in order to gear up for further growth, according to a study announced today by the Software & Information Industry Association (SIIA), the principal trade association for the software and digital content industries.
The 2014 Software & SaaS Financial Benchmarking Report is produced by SIIA partner OPEXEngine, the leading aggregator of financial and operating benchmarks for small- and mid-sized software companies. To complete this eighth annual report, OPEXEngine surveyed several hundred private and public U.S. firms with revenues between $1 million and $450 million, with a focus on Software-as-a-Service (SaaS) metrics.
The report, which benchmarks 2013 financials and operating metrics, finds that median revenue for private software firms rose almost 42 percent year over year – the highest percentage increase since the 2008 recession, and almost 40 percent higher than last year’s revenue growth rate of 30.5 percent. Revenue for all public companies included in the survey rose an average of 18 percent in 2013, while revenue growth for public SaaS companies averaged almost 30 percent.
This year’s study also indicates that private and public firms – encouraged by revenue growth – felt confident about increasing spending over current revenues, and were investing in operations and hiring to drive further growth.
Further demonstrating this focus on investment, both private and public companies have budgeted to add jobs this year. Private firms plan to increase employee headcount by 26 percent (a 3.5 percent increase over 2013 plans) by the end of 2014, while public companies project a nearly 27 percent gain in 2014 headcount.
“This year’s benchmarking report of small- to -mid-sized software companies shows a significant shift in focus from profits to investment,” said Rhianna Collier, vice president of the SIIA Software Division. “While most firms were cutting back and hyper-focused on profitability in the wake of the recession, they have clearly shifted to focusing on growth. Not only are companies experiencing strong revenue gains – they are pouring investment back into their firms and setting the stage for further growth and job creation.”
Lauren Kelley, CEO and founder of OPEXEngine, added: “In taking the pulse of small to mid-sized software companies since fiscal year 2006, we have had a unique opportunity to watch the industry respond to, and recover from, one of the most turbulent economic periods. Over the last six years, the industry has shown increasingly strong revenue growth, driven by a dramatic rise in worldwide markets for cloud-based software. Both private and public companies in this segment of the industry are spending over revenues, signaling a renewed commitment to growth not seen since before 2008.”
OPEXEngine also compares software firms in different geographic regions and finds that median revenue growth for private East and West Coast firms is twice that of private companies in the Central and Mountain regions. At the same time, average operating income for private firms in the Central and Mountain regions is positive (by nearly 3 percent), whereas private firms based on the East and West Coast had operating losses of median 34 percent and 27 percent, respectively.
“While the rise of remote, cloud-based software has allowed for the establishment of more firms outside major tech centers, these companies do not yet have the same access to venture funding as their East and West coast counterparts,” said Kelley. “Venture funding is concentrated on the coasts – in start-ups and in massive growth investments to scale companies, acquire customers and drive revenue growth. At the same time, we are seeing East and West Coast firms invest their revenues in future growth, while firms in the Central and Mountain regions are being managed more conservatively.”
Other key findings from the 2014 Software Benchmarking Industry Report include:
- Median revenue growth for private East and West Coast firms is 51-53 percent, compared to an average of 25 percent for firms in the Central and Mountain regions.
- Median sales and marketing spending for West Coast firms is highest among the regions at 65 percent of revenue. Comparatively, East coast firms spent a median of 51 percent on sales and marketing, while Central and Mountain region firms benchmark at a median 33 percent in sales and marketing.
- West Coast private firms utilize the most venture funding, at a median of $65 million. East Coast firms follow, accepting a median of $23 million in venture funding, while firms in the Central and Mountain region access a median of $6.8 million in venture funding.
The 2014 Software & SaaS Financial Benchmarking Industry Report provides extensive financial and operating metrics for U.S.-based companies with 2013 revenues of between $1 million and $450 million. Benchmarks cover key financials, including detailed expense ratios, revenue and profit metrics, geographic break-outs, employee statistics, as well as customer and sales model comparisons. The report also looks specifically at Software-as-a-Service (SaaS) vendors and breaks out all the benchmarks for smaller, private companies as well as for larger, public, companies.
About SIIA
SIIA is the leading association representing the software and digital content industries. SIIA represents approximately 800 member companies worldwide that develop software and digital information content. SIIA provides global services in government relations, business development, corporate education and intellectual property protection to the leading companies that are setting the pace for the digital age. The SIIA Software Division provides a forum for companies developing the applications, services, infrastructure and tools that are driving the software and services industry forward. For further information, visit www.siia.net/software.
