2018 Private SAAS Company Survey- Part 2

In Part 1, we covered development rates, go-to-market trends, and CAC Rations and CAC Payback.

We just recently released Part 1 outcomes of our personal SaaS business study in partnership with KBCM Innovation Group ( formerly Pacific Crest Securities). This is the 6th annual study we have actually produced together, which provides data to help SaaS companies benchmark their efficiency versus their competitors.

Were thrilled to share Part 2 of the study results, which covers:

Operations
Cost Structure
Contracting and Pricing
Retention and Churn
Capital Requirements and Use of Debt Financing
Leading Quartile Benchmarks

Operations

Subscription Gross Margin

157 respondents

( 1 )Respondents asked to back out stock-based compensation. expenses and include consumer support costs

How is your SAAS Application Delivered?

( 1 )Reported “predominant” mode of shipment

245 and 233 participants, respectivel

87% of individuals utilize 3rd parties primarily (almost 3/4 of which utilize AWS); expectations for the future program a continuing shift to third-party application delivery with AWS keeping share.

SAAS Application Delivery Trends given that 2014

( 1 )Reported “predominant” mode of delivery

Participants: 2014: 297; 2015: 282; 2016: 289; 2017: 384; 2018: 245

SAAS Application Delivery Mode as a Function of Size of Company

Participants: Total: 152, $5MM-$ 10MM: 39, $10MM-$ 15MM: 24, $15MM-$ 25MM: 29, $25MM-$ 40MM: 24, >>$ 40MM: 36

( 1 )Target Customer– More than 50% of earnings come from designated consumer base; “Mixed” defined as respondents who didnt choose at least ~ 67% for any designated consumer base.

The study results donot point to a considerable difference in sales commission rates between business which predominantly use a field go-to market versus inside sales.

Mean direct sales and fully-loaded commission rates do not differ substantially across typical contract sizes.

Respondents: Total: 119, Enterprise: 57, Enterprise & & Middle Market: 26, Middle Market/ SMB/ VSB: 23, Mixed: 13, omits respondents indicating no professional services.

Mean subscription gross margins do not vary significantly when filtered by SaaS application shipment method, though Azure and Google Cloud (for which data is sparse) had more comprehensive distributionsthan AWS.

Respondents: Total: 221 and 207, <$ 250M: 8 and 8, respective. Respondents: Renewals: 129, Upsells: 147, Extra Years on Initial Contract: 165. ( 2 )Same rate (or higher) than new sales commissions. Respondents: Total: 157, Amazon Web Services (AWS): 107, Google Cloud: 10, Salesforce: 2, Microsoft Azure: 5, Other Third-Party: 10, Others: 4, Self Managed Servers: 1. Sales Commissions as a Function of Median Contract Size. ( 1 )Among companies paying a commission. Direct Commissions for Renewals, Upsells, and Multi-year Deals. Expert Services (% of 1st year ARR) as a Function of Target Customer. Just the largest (and oldest) suppliers have any substantial reliance on self-managed servers. Though, even for them, use of AWS increased considerably from last years survey. Respondents: Total: 180, Field Sales: 96, Inside Sales: 84. Analysis of Sales Commission Levels. As anticipated, companies which are focused generally on selling to large business have greater levels of professional services. Membership Gross Margin as a Function of Application Delivery. Expense Structure Participants reporting: Subscription Gross Margin: 149, Gross Margin: 133, Sales & & Marketing: 133, Research & & Development: 133, General & & Administrative: 133, EBITDA Margin: 139, FCF Margin: 138, YoY Organic ARR Growth Rate: 164. . Mean includes ALRM, AMBR, APPF, APPN, APTI, ATHN, AYX, BCOV, BL, BNFT, BOX, BV, CARB, CLDR, CNVO, COUP, COVS, CRM, CSOD, CTCT, CVT, DMAN, DOMO, DWRE, ECOM, ELLI, EOPN, ET, FLTX, HUBS, KXS, LOGM, MB, MDB, MKTG, MKTO, MRIN, N, NEWR, NOW, OKTA, OPWR, PAYC, PCTY, PFPT, QLYS, RNG, RNOW, RP, RPD, SEND, SFSF, SHOP, SMAR, SPSC, SQI, TLEO, TWLO, TXTR, VEEV, VOCS, WDAY, WK, XTLY, YDLE, ZS and ZUO. Note: Excludes stock-based compensation (SBC). ( 2 )Gross margin figured out based on including client support in COGS. Typical Number of Respondents: $5MM-$ 10MM: 35, $10MM-$ 15MM: 19, $15MM-$ 25MM: 31, $25MM-$ 40MM: 20, $40MM-$ 60MM: 18, >>$ 60MM: 16.

Keep in mind: Numbers do not add due to the truth that typicals were calculated for each metric separately and separately.

Note: Margins might differ from margins on other pages due to the fact that the $5MM size threshold is based on companies 2017 GAAP Revenue instead of 2017 ARR (consistent with previous years surveys).

( 1 )YoY Revenue Growth compares against previous years income of the companies at the time.

GAAP Revenue rather of 2017 ARR, which is constant with previous years surveys.

For Comparison: Historical Results of Selected Public SAAS Companies.

~$ 25MM mean omits ALRM, AMBR, APPN, APTI, ATHN, BCOV, BL, BNFT, CARB, CBLK, COUP, COVS, CSLT, CVT, DOMO, ECOM, ELLI, EOPN, FIVN, FLTX, KXS, MB, MDB, MKTG, MKTO, MRIN, MULE, N, NOW, OKTA, PAYC, PCTY, PFPT, QLYS, RNG, RP, SEND, SFSF, SMAR, TWLO, TWLO, ULTI, WK, YDLE, ZS and ZUO.

( 1 )All margins based on 2017 GAAP, changed for stock-based compensation add-back.

Average Cost Structure by Size.

Keep in mind: Margins might differ from margins on other pages since here companies are excluded based upon their 2017.

~$ 100MM typical omits AMBR, BOX, CNVO, EOPN, EVBG, NOW and VEEV.

~$ 50MM mean omits ALRM, APPN, APTI, BNFT, BV, CARB, CBLK, CVT, DOMO, FLTX, MDB, N, NEWR, RNOW, RP, SFSF, VEEV, WDAY and ZUO.

Determining Survey Participants versus “The Rule of 40%”

Source: Capital IQ; market data as of 10/19/1.

The typical outcomes of those participants conference or going beyond “The Rule of 40%” shows that while the best G+P performers are of similar size and age vs. those under “Rule of 40”, they have significantly lower CAC and capital consumption ratios. Likewise, the more powerful group is more most likely to be vertically-focused, and far less likely to be enterprise-focused.

For Comparison: “The Rule of 40%” for Public SAAS Companies.

Simply ~ 20% (21 of 106) of the individuals with >>$ 10MM ARR meet or exceed “The Rule of 40%”.

( 1 )G+P equates to 2017 natural ARR development rate plus 2017 FCF margin.

Contrast of “The Rule of 40%” Qualifiers vs. Others.

< 40%: 8. Contract Length as a Function of Contract Size. Median/Typical Contract terms for the Group. . Respondents: Average Contract Length: 260, Average Billing Frequency: 260. < 40%: 85. Contracting and Pricing. For contrast, public SaaS business median development + success is 33%. Significantly, 70% of the market cap of public SaaS is above the 40% limit, as of the date of this report. Participants: Total: 238, <

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