Given the economies of scale benefits, sub $10M SaaS companies generally exhibit 40 to 60% GPM (Gross Profit Margins) and grow to greater than 68% to 70% range as they cross the chasm between $20M and $25M in recurring revenues. Those SaaS companies which are more service intensive, such as Concur, DealerTrack, and RealPage did not achieve 70% GPM until after $50M in revenues.
SaaS Technology Spend Investment Sources:
For private SaaS companies the Technology R&D spend ranges widely from 68% to 10% with the majority spending 20% to 38%.*
SaaS GoToMarket Spend Investment Sources:
- Ranges from 17% to 500% for SaaS companies below $50M. The higher the ASP (average selling price) the lower the CAC (customer acquisition costs). Regardless of ASP payback is within 24 months.
- S&M Expense as a % of Revenue ranged from 63% to 27% for companies under $10M. Public SaaS S&M Expense Comparables.
SaaS private Company Valuation TTM Market Comparables for firms with 68% to 85% Gross Profit Margins and >91% customer retention rate and >20% adjusted EBITDA:
- EV/Sales TTM 2.0 to 5X
- EV/EBITDA TTM 8.0x to 26.6X
Related sources and citation:
- Open View Partners “2013 SaaS Metrics” report.
- River Cities: “2011 SaaS Benchmarking Valuation Report.”
- “Benchmarking in a SaaS World”
- Public Company R&D Spend
- SaaS Valuations by Industry Sector
*Not to be confused with SaaS R&D technology spend; IT hardware, software, and related services technology spend, for private company midmarket labor intensive businesses IT spend is 1.5% to 3% of total annual revenues and equivalent for IT management and staffing. For subscale pre institutional with revenues below $50M roughly double the spend for emerging, fast-growth companies to cross the chasm.