There are outliers. Rules of thumb are just general guidelines, and sure enough there are significant outliers. 45% of Dropbox’s spend was on R&D while only 13% of Zoom’s spend is on R&D. Similarly, 73% of Zoom’s spend was on sales & marketing, Dropbox spent only 37% on S&M, and Bill.com spent 28% on S&M. Snowflake spent a whopping 130% of revenue on S&M and indeed their EBITDA margin is the worst of the bunch at -192%.
COGS isn’t 20%. The other rule of thumb that needs to be debunked is that COGS is 20% of revenue. As you can see, the median and averages are 25% and 27% respectively.
Indeed, software is forgiving: so long as you’re growing fast, have excellent retention, and marquee customers you’re allowed to burn cash as recurring revenue that doesn’t churn is an annuity with tremendous value.
sammy@blossomstreetventures.com
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