Two metrics we use to compare software businesses are revenue per employee and operating expense (opex) per employee. In our view these are great measures of operational efficiency. What is a reasonable amount of rev/head and opex/head in SaaS? The data from the last 28 SaaS IPOs is below. Headcount. The median headcount…
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The general rule of thumb for spending in SaaS is 40/40/20. In other words, 40% of operating expense should be on R&D, 40% should be on sales and marketing, and 20% should be on G&A. Rules of thumb are just generalizations, so we wanted to see what the data really is. 28 SaaS companies have…
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I read “Chaos Monkeys, Obscene Fortune and Random Failure in Silicon Valley.” The book is a 2015 vintage, but a lot of the lessons and take-aways are relevant today. It’s a great read that I would highly recommend; key excerpts are below. FB’s data isn’t that valuable. “The miserable conclusion was that Facebook,…
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Profitability is not a requirement in SaaS. Of the 71 SaaS IPO’s below, 59 of them were not profitable at the time they went public (83%). Clearly a certain level of burn is ok so long as you’re growing, but what is that level? On median, the operating margin was -24%, meaning for…
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Churn, no matter how low, will never go to zero. Peloton’s prospectus is a great example of this: while user engagement increased dramatically, churn was not declining. Below is a more detailed graphic which shows the trend. As you can see, old cohorts are increasing their usage and newer cohorts are more prolific users than…
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That’s an aggressive title for a blog, but the data shows it may be true. We looked at the quarterly revenue growth of 47 tech companies before and after the 2008 recession and remarkably, the sector performed well. Below is the data. Software. Only 4 companies showed real YOY drops during the recession and as a group,…
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Price Intelligently put out phenomenal content on how to price your SaaS product. A link to the full report is at the end of this blog and it’s well worth the read. Below are our biggest takeaways. Don’t use competitors’ pricing as your basis. “the biggest downside of competitor based pricing should be obvious….
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Someone wants to buy your business? Awesome. Before you spend a bunch of time with the acquirer, below are the details you’ll need to know. Much of the language is taken verbatim from a bid instruction letter that one of our investment bankers supplied us with. Purchase price and form of consideration. The purchase…
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We took a look at the employee count and revenue of 84 publicly traded SaaS companies to determine revenue per employee. The data is below and shows a median of $260k. For newer companies that IPO’d after 2018, the median is $232k. Observations are below: Correlation is strong. The correlation between employee count and…
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The holy grail of ecommerce is to grow your cohorts over time. In other words, the customers you acquire today spend even more the following year and year after that, such that your existing customer base is a source of growth. It’s a very healthy position to be in as you aren’t dependent on acquiring…
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