Why Salesforce.com is the Ultimate SaaS Land and Expand Titan

  

Last week, Salesforce.com (CRM) announced their FY 2018 results. The data indicates strength of their expansion model. Here’s why.

SaaS companies, as well as investors in SaaS, watch Salesforce the original pioneer of the SaaS model.   The “No Software” company is the largest fast growth SaaS company in the world, keeping the momentum going even as a multi-billion-dollar company.  Last week, Salesforce.com broke the $10B revenue barrier for the first time with its earnings announcement.

Marc Benioff, chairman and CEO of Salesforce said, “We had an outstanding quarter of growth that propelled Salesforce over the $10 billion revenue milestone for the year.”

Salesforce.com

Salesforce.com is the ultimate land and expand pioneer, originating the freemium model and establishing a foothold in the enterprise through the departmental usage of their SaaS CRM and then expanding up the chain into the enterprise while building out the platform to increase contract values.

What’s new here is how the market and analysts are rewarding Salesforce for the story presented by other metrics besides profits and revenue.  This is a story of a strong growth company with a product strategy that’s succeeding to expand its recurring subscription base in the enterprise.  Analysts validate this strategy by looking at non-traditional financials like billings and deferred revenue, plus non-GAAP metrics like churn and retention that are critical indicators for subscription businesses.

Much talked about by analysts is Salesforce’s strong billings’ growth-mainly deferred revenue, which is received in advance of subscription services-and bookings.  Bookings include changes in off-balance-sheet revenue, or the “unbilled” sales.  Billings grew by 28% to $5.6 billion, well ahead of the high end of guidance and consensus expectations of 17% growth. Unbilled deferred revenue was up 48% to $13.3 billion in Q4.

Analysts see a positive picture with steady growth rates in billings, deferred revenues, and bookings in combination with a strategy that continues to spend close to 50% of earnings on sales and marketing.  Salesforce has proven that it can be profitable, and could always cut sales and marketing if needed to improve profits, but in the meantime, is dominating the enterprise and establishing beachheads for its expanding platform against competitors. 

Land & expand sales models are expensive regarding sales and marketing, requiring a high-priced sales force as well as costly marketing air and land cover to feed the sales force.  The reasoning behind making this investment is that it will pay off in the growth of the company as well as show an improved CLV/CAC ratio as contracts get bigger.

Salesforce has consistently spent almost 50% of revenues on Sales & Marketing — with compelling growth rates justifying the investment.   By maintaining a consistent spend, if Salesforce.com continues to add customers at the same rate, then its CAC will also remain roughly equal. Growing average contracts with the enterprise would then also increase the CLV/CAC ratio.  There’s a big “if” there that Salesforce can continue to add new customers at the same rate every year – there’s only 1000 companies in the Fortune 1000…but growth companies are coming up all over the world, so it’s a good bet.

Salesforce.com

In terms of valuations, Salesforce jumped last week from 6.6 times revenue to almost 8 times revenue.   Other enterprise Cloud leaders, like Workday and Adobe, are valued around 10 times revenues.  Salesforce may suffer slightly from being in a crowded space, with thousands of other CRM players, large and small in the space, but certainly is succeeding extremely well in executing on their land & expand strategy and painting the corresponding financial picture for the market. 

Salesforce.com

 

 

SaveSave

SaveSave

Share this:

Submit a Comment

Your email address will not be published. Required fields are marked *

WHAT OUR CLIENTS ARE SAYING

GET WEEKLY INSIGHTS + TRENDS ON SAAS METRICS

Why join our email list? Get important insights delivered straight to your inbox and receive access to reports before public release. We promise not to spam you or sell your name to anyone. You can always unsubscribe from our content at any time.


By submitting this form, you are consenting to receive marketing emails from: OPEXEngine.com, 282 Moody Street, Waltham, MA, 02453, http://www.opexengine.com. You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

WordPress Video Lightbox Plugin
Site Menu