Healthy metrics for sales & marketing spend in SaaS

We poured through the latest annual reports of 44 publicly traded SaaS businesses and analyzed the latest trends in sales and marketing spend.  While big publicly traded companies aren’t a perfect comparison for Series A and B SaaS businesses, they definitely provide guidance as to what healthy and unhealthy trends and metrics looks like.  The data set as well as a few observations are below:

 

    Revenue Revenue Revenue   Growth Growth   S&M S&M S&M   S&M/Rev S&M/Rev S&M/Rev   2016 2015
    2016 2015 2014   2016 2015   2016 2015 2014   2016 2015 2014   Efficiency Efficiency
Hortonworks, Inc. HDP $184,461 $121,944 $46,048   51% 165%   $183,542 $133,052 $70,695   100% 109% 154%   $0.34 $0.57
Wix.com Ltd. WIX $290,103 $203,158 $141,841   43% 43%   $97,742 $120,010 $156,512   34% 59% 110%   $0.89 $0.51
Splunk, Inc. SPLK $949,955 $668,435 $450,875   42% 48%   $653,524 $505,348 $344,471   69% 76% 76%   $0.43 $0.43
New Relic, Inc. NEWR $263,479 $181,309 $110,391   45% 64%   $168,163 $129,677 $89,162   64% 72% 81%   $0.49 $0.55
Box, Inc. BOX $398,605 $302,704 $216,440   32% 40%   $253,020 $242,184 $207,749   63% 80% 96%   $0.38 $0.36
Blackline BL $123,123 $83,607 $51,677   47% 62%   $77,810 $56,546 $31,837   63% 68% 62%   $0.51 $0.56
Instructure INST $110,880 $73,193 $44,352   51% 65%   $69,991 $53,459 $35,390   63% 73% 80%   $0.54 $0.54
MobileIron, Inc. MOBL $163,926 $149,298 $132,295   10% 13%   $101,757 $105,520 $99,870   62% 71% 75%   $0.14 $0.16
HubSpot, Inc. HUBS $270,967 $181,943 $115,876   49% 57%   $162,647 $112,629 $78,809   60% 62% 68%   $0.55 $0.59
Castlight Health, Inc.  CSLT $101,700 $75,315 $45,605   35% 65%   $58,800 $67,414 $62,065   58% 90% 136%   $0.45 $0.44
Proofpoint, Inc. PFPT $375,496 $265,397 $195,607   41% 36%   $201,204 $148,414 $98,333   54% 56% 50%   $0.55 $0.47
Zendesk, Inc. ZEN $311,999 $208,768 $127,049   49% 64%   $166,987 $114,052 $77,875   54% 55% 61%   $0.62 $0.72
Cornerstone OnDemand, Inc. CSOD $423,124 $339,651 $263,568   25% 29%   $225,631 $207,026 $162,552   53% 61% 62%   $0.37 $0.37
2U TWOU $205,864 $150,194 $110,239   37% 36%   $106,610 $82,911 $65,218   52% 55% 59%   $0.52 $0.48
Coupa Software COUP $133,775 $83,678 $50,845   60% 65%   $68,562 $54,713 $33,724   51% 65% 66%   $0.73 $0.60
RingCentral, Inc. RNG $379,724 $296,228 $219,887   28% 35%   $192,497 $139,851 $104,827   51% 47% 48%   $0.43 $0.55
ServiceNow, Inc. NOW $1,390,513 $1,005,480 $682,563   38% 47%   $700,464 $498,439 $341,119   50% 50% 50%   $0.55 $0.65
LogMeIN, Inc. LOGM $336,068 $271,600 $221,956   24% 22%   $162,811 $138,946 $119,508   48% 51% 54%   $0.40 $0.36
Apptio APTI $160,569 $129,251 $106,615   24% 21%   $75,856 $71,337 $60,775   47% 55% 57%   $0.41 $0.32
salesforce.com, Inc.  CRM $8,391,984 $6,667,216 $5,373,586   26% 24%   $3,918,027 $3,239,824 $2,757,096   47% 49% 51%   $0.44 $0.40
Lifelock LOCK $587,469 $476,016 $369,658   23% 29%   $273,389 $213,984 $162,363   47% 45% 44%   $0.41 $0.50
IntraLinks Holdings, Inc. IL $276,153 $255,821 $234,496   8% 9%   $124,006 $115,867 $108,428   45% 45% 46%   $0.16 $0.18
Xactly XTLY $95,461 $75,974 $61,111   26% 24%   $40,187 $34,836 $28,877   42% 46% 47%   $0.48 $0.43
Mindbody, Inc MB $139,021 $101,369 $70,010   37% 45%   $56,460 $46,345 $30,922   41% 46% 44%   $0.67 $0.68
LivePerson Inc. LPSN $222,779 $239,012 $209,931   -7% 14%   $89,529 $94,728 $83,253   40% 40% 40%   -$0.18 $0.31
WorkDay, Inc. WDAY $1,569,407 $1,162,346 $787,860   35% 48%   $583,874 $434,056 $315,840   37% 37% 40%   $0.70 $0.86
Jive Software, Inc. JIVE $204,094 $195,793 $178,693   4% 10%   $74,654 $78,684 $90,141   37% 40% 50%   $0.11 $0.22
Bazaarvoice, Inc. BV $199,766 $191,181 $168,145   4% 14%   $69,808 $78,373 $86,482   35% 41% 51%   $0.12 $0.29
Shopify SHOP $205,233 $105,018 $50,252   95% 109%   $70,374 $45,929 $23,351   34% 44% 46%   $1.42 $1.19
SPS Commerce, Inc. SPSC $193,295 $158,518 $127,947   22% 24%   $65,886 $55,374 $46,990   34% 35% 37%   $0.53 $0.55
Marin Software, Inc. MRIN $99,878 $108,530 $99,354   -8% 9%   $32,889 $45,132 $47,716   33% 42% 48%   -$0.26 $0.20
Five9, Inc.  FIVN $162,090 $128,868 $103,102   26% 25%   $52,748 $42,042 $37,445   33% 33% 36%   $0.63 $0.61
BroadSoft, Inc.  BSFT $340,962 $278,843 $216,857   22% 29%   $107,142 $83,806 $69,471   31% 30% 32%   $0.58 $0.74
Qualys, Inc. QLYS $197,925 $164,284 $133,579   20% 23%   $57,970 $49,569 $48,049   29% 30% 36%   $0.58 $0.62
Secureworks SCWX $429,502 $339,522 $262,130   27% 30%   $124,950 $111,978 $85,046   29% 33% 32%   $0.72 $0.69
The Ultimate Software Group, Inc. ULTI $781,291 $618,081 $505,936   26% 22%   $224,416 $169,664 $117,033   29% 27% 23%   $0.73 $0.66
Appfolio, Inc. APPF $105,586 $74,977 $47,671   41% 57%   $28,827 $26,076 $16,876   27% 35% 35%   $1.06 $1.05
RealPage, Inc. RP $568,128 $468,520 $404,551   21% 16%   $135,213 $123,108 $111,563   24% 26% 28%   $0.74 $0.52
Benefitfocus, Inc. BNFT $233,335 $185,143 $137,420   26% 35%   $55,488 $58,589 $48,467   24% 32% 35%   $0.87 $0.81
Athenahealth, Inc. ATHN $1,082,900 $924,700 $752,600   17% 23%   $256,600 $237,300 $196,800   24% 26% 26%   $0.62 $0.73
Medidata Solutions, Inc. MDSO $463,381 $392,506 $335,071   18% 17%   $109,290 $103,153 $83,435   24% 26% 25%   $0.65 $0.56
Twilio TWLO $277,335 $166,919 $88,846   66% 88%   $65,267 $49,308 $33,322   24% 30% 38%   $1.69 $1.58
Veeva Systems Inc. VEEV $544,043 $409,221 $313,222   33% 31%   $116,803 $80,984 $56,203   21% 20% 18%   $1.15 $1.19
Atlassian Corporation TEAM $457,058 $319,521 $215,109   43% 49%   $93,391 $67,989 $34,968   20% 21% 16%   $1.47 $1.54
                                     
                                     
Average   $554,600 $431,797 $331,383   31% 40%   $239,882 $197,005 $158,196   43% 48% 54%   $0.58 $0.60
Median   $273,560 $199,476 $154,993   27% 33%   $106,876 $98,941 $81,031   41% 46% 48%   $0.54 $0.55

 

-In 2016, the median SaaS business had total revenue of $274mm, grew revenue by 27% from the prior year, and spent 41% of total revenue on sales & marketing. 

 

-Higher spend doesn’t mean faster growth.  For instance, the 10 largest spenders - as measured by sales and marketing spend as a percent of revenue – spent 64% of revenue on sales and marketing, but had average growth of 41%.  Meanwhile, the 10 lowest spenders spent 25% of revenue on sales and marketing but had average growth of 32%.  In other words, the 10 highest spenders spent 2.5x more of their revenue on sales and marketing, but only had 1.3x better growth: 41% versus 32%. 

 

-Only 1 of the 44 companies spends 100% of its revenue on sales and marketing (Hortonworks).  Obviously this isn’t sustainable unless you have extremely deep pockets. We call this out only because we’ve seen Series A/B businesses do this.  Don’t be them.

 

-We did a calculation of spending efficiency.  We measure “efficiency” as dollar growth in revenue from 2015 to 2016 divided by marketing spend in 2016.  In other words efficiency is how much new revenue does $1 in sales and marketing spend generate.  The median was $0.54 of new revenue per $1 of sales and marketing spend in 2016 and $0.55 in 2015.  Those are actually fantastic numbers, given that the typical SaaS company retains 99% of its revenue from the prior year.   That said, $0.34 seems to be the lowest you should let this figure fall: if we pull out the 6 least efficient companies from the data set, the minimum remaining is $0.34 (the 6 we pulled are far lower ranging from -$0.26 to $0.16). 

 

-As expected, the biggest spenders are the least efficient.  The top 10 spenders - as measured by sales and marketing spend as a percent of revenue – spent 64% of revenue on sales and marketing but generated only $0.49 of new revenue per $1 of sales and marketing spend.  Meanwhile, the 10 lowest spenders spent 25% of revenue on sales and marketing yet generated $0.97 of new revenue per $1 of sales and marketing spend.  That’s nearly double the efficiency for less than half the marketing spend. 

 

So what are the key take-aways from all this data? In general, sales and marketing spend will be about 41% of revenue for a larger, slowing growing business (27% YOY growth) and generate about $0.54 of new revenue per $1 of marketing spend.  So long as you have strong net dollar retention (we find the median is 99%), numbers like that will allow you to grow into a large public company like the 44 businesses in this data set.  If those metrics were good enough for them to become large public companies, they’ll be good enough for you.  Also don’t be shy about spending on sales and marketing, although keep an eye on efficiency: if you’re at or near $0.54 of new revenue per dollar of sales and marketing spend, you’re in good company, but don’t let it fall below $0.34.   

 

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