2016 Pacific Crest SaaS Survey — Part 1

For the fifth year in a row, we’re proud to work with Pacific Crest Securities, a SaaS-focused investment banking firm, to share results from a survey of 336 SaaS companies. The survey represents deep benchmarking data and insights on growth and operation of SaaS companies.

Many thanks to the readers of forEntrepreneurs who participated in the survey and to the team at Pacific Crest Securities for their work on the survey. To learn more about Pacific Crest Securities or download the full report, click here.

Part 1 of the survey results focuses on growth rates, go-to-market trends and cost structure. A new highlight in this year’s survey is data on balancing growth and profitability in SaaS companies, commonly known as The Rule of 40%.

You can find Part 2 of the results here, which compares application delivery methods, operational costs and gross margins, contract terms, churn rates, capital requirements and accounting methods.

We’ve also published the forEntrepreneurs 2016 SaaS Survey Infographic! The infographic pulls together major takeaways from the SaaS Survey and ties in advice for founders on relevant metrics.

Intro

Survey Participants

  • 336 senior executives from a broad diversity of SaaS companies
  • $5MM median revenues with over 60 companies >425MM
  • ~50 median FTEs
  • Median customer count: ~250; 28% with >1,000 customers
  • 75% of companies were headquartered in the US
  • ~$25K median annual contract value (ACV)
  • 44% of companies use field sales as their predominant mode of distribution, while 23% of companies use predominantly inside sales

Survey Participant Size Distribution

Growth Rates

How Fast Did / Will You Grow GAAP Revenues?

(Excluding Companies <$2.5MM in Revenue)

As expected, many of the fastest growing companies are among the smallest. Eliminating them brings median growth rates down ~10% points. Median growth rates are consistent with last year’s results. However, this year’s respondent pool was more evenly distributed.

Sales and Marketing Spend vs. Growth Rate

(Excluding Companies <$2.5MM in Revenue)

Not surprisingly, companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less. This year’s results were in-line with previous surveys.

Go-To-Market

Primary Mode of Distribution (1)

While field sales remains the most popular way to sell for companies >$2.5MM revenue, companies with <$2.5MM revenue tended to use inside sales as their primary mode of distribution. In comparison with previous surveys, companies $2.5MM+ have shifted to greater use of field sales (+12 percentage points from 2015).

CAC Ratio on New Customers vs. Upsells vs. Expansions vs. Renewals

(Excluding Companies <$2.5MM in Revenue)

The median CAC ratio per $1 of upsells is $0.27, or 24% of the CAC to acquire each new customer dollar. The CAC ratio number for expansions is $0.20, or 18% of the CAC to acquire each new customer dollar. For renewals, it is $0.13, or 12%. These results are substantially similar to previous years. If you want to read more on CAC, you may find this post to be of interest — Startup Killer: The Cost of Customer Acquisition.

CAC Payback Period (Gross Margin Basis)

We used answers on CAC ratio and subscription gross margin questions to determine an implied CAC payback period.

Respondents reported an implied median CAC payback period of ~18 months, though there was a wide distribution of responses.

Subscription Gross Margin

“What is your gross profit margin on just subscription/SaaS revenues?”

Median subscription gross margins are 78% (nearly identical when removing the smallest companies from the group). These results are virtually unchanged from 2015, 2014, and 2013 results.

Direct Sales Commissions by Sales Strategy

Survey results did not point to a significant difference in direct commissions between companies that predominantly use a field go-to-market strategy vs. inside sales. However, the median fully-loaded commission for field sales (12%) was higher than that for inside (10%).

Commissions for Renewals, Upsells and Multi-Year Deals

Commissions on renewals are either non-existent or very low, with 40% paying no commission and a median rate of 3% among those paying one. Upsells command a median rate of 7% and more than half of companies pay full commissions on upsells. The most significant changes compared to last year include: 1) Upsells: 59% paid full commission rates on upsells vs. 45% in last year’s group; comparable to 58% in 2013 results. 2) This year, only 11% paid full commission on TCV for multiple year contracts vs. 20% in last year’s group.

Cost Structure

Cost Structure

(Excluding Companies <$2.5MM in Revenue)

Results are largely in-line with previous results, but EBITDA and FCF margin were much more negative than respondents predicted (1% EBITDA margin and 3% FCF margin for 2015).

Measuring Performance Based On an Index of Growth Plus Profits

(Including Companies $15MM+ in Revenue)

In this year’s survey, we sought to evaluate how SaaS companies of scale (at least $15MM of 2015 GAAP revenue) trade off growth and profitability (as measured by EBITDA margin). This has become a hot topic for management and investors as attitudes have shifted away from “growth at any cost”. The median growth plus profit margin in the group was 20%.

Measuring Survey Participants Against “The Rule of 40%”

(Including Companies $15MM+ in Revenue)

~26% of respondents with at least $15MM in 2015 GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher — “The Rule of 40%”, a popular benchmark for top SaaS company performance.

For Comparison: Growth and Profitability of Public SaaS Companies

The median TTM revenue growth rate + adj. EBITDA margin for publicly traded SaaS companies was ~37%, implying that just under one half met or exceed “The Rule of 40%”.

More to come…

If you are interested in SaaS metrics and benchmarking your company, you may find the following post to be of interest:

SaaS Metrics 2.0 — A Guide to Measuring and Improving What Matters

You can find Part 2 of the results here. Part 2 compares application delivery methods, operational costs and gross margins, contract terms, churn rates, capital requirements and accounting methods.

I’d love to hear your thoughts and feedback on Part 1 of the results. Please leave a response below!

If you enjoyed reading this, you may also be interested in the following posts:

Bridge Group 2016 Sales Development Benchmarks Report

Customer Acquisition: Maximizing Your Funnel

This is a condensed version of a post originally published on forEntrepreneurs.

For more, follow us on Medium: David Skok and Matrix Partners Viewpoints. And on Twitter: @BostonVC and @Matrix Partners.