2017 was a banner growth year for SaaS companies, and particularly for SaaS vendors that went public over the past 12-18 months. Based on OPEXEngine’s data feed of analyst revenue expectations for the next fiscal year filings, top performing SaaS companies’ annual revenue growth rates keep climbing and it appears as if they will beat the previous growth rates by a significant margin.
Revenue Growth Rates
In the chart below, let’s examine these eight SaaS vendors most recent fiscal year revenues and what analysts are expecting them to record. Assuming that analyst expectations are correct, or at least in the ballpark you’ve got some pretty impressive percentages that translate dollars into growth rates. Almost of all these are over 50% with two SaaS companies expected to announce over 100% year-over-year revenue growth.
Sales and Marketing Spending
Now, let’s take a look at what these companies spent last year on Sales and Marketing. The average spend for these eight companies was almost 50% of revenue, which is a benchmark that has held pretty steady, especially for high performance public SaaS companies over the past several years. Some of the companies in this group are showing significantly less spending on Sales and Marketing, though. Could some of this be related to their products, i.e., does Sendgrid, a leading SaaS email marketing vendor, have the same Sales and Marketing expense that the rest of the companies in the sector do?
Profit Margins
As many companies are preparing to announce their 2017 results here’s a look at the profit margins these companies recorded last year.
Needless to say, none of these recent SaaS IPO vendors filed positive profit margins in their quest for market leadership, even though their annual growth rates were climbing. Will 2018 bring better profit metrics along with the expected high revenue growth rates? Presumably, with the extraordinary growth rates they are expected to announce soon, it will be difficult to continue through 2018, despite a strong market. For most companies, a safe strategy is to improve profits if revenue growth rates slow, unless the company can demonstrate investment in product or infrastructure that will sustain strong growth in the future. 2018 is going to be an interesting year as we continue to see strong growth rates for SaaS companies. SaaS operating models are becoming more sophisticated and companies are getting better at tracking key internal operating metrics. Private SaaS companies mapping their path to growth benefit from benchmarking themselves against peers and market leaders.
