#Operating expense vs cogs software

The company grew revenue 110% year-over-year in 2017, representing a 1.9x multiple (110% / 59%) which is near the 50th percentile of efficiency.Ī few caveats: 1) The data here is noisier than for S&M efficiency, 2) these ratios do not control for spend in other areas which may also contribute to that growth, 3) the data doesn’t account neatly for investments that may take years to pay-off. However, Slack’s R&D expenses are somewhat justified given the growth. Returning to our example, when Slack generated $105M in revenue, the company spent 59% of sales on R&D which benchmarks well below the 25th percentile. Spend (as a % of revenue) is typically higher in the early stages of a company’s lifecycle as they are in the expansion phase and are actively building out their sales organization. If your company generated $100M in revenue, the median S&M spend for a company of this scale is 48% of revenue. Estimated percentiles (75th, 50th, 25th) from power trendlines based on a regression of the data.Calculated expense ratios (“Y”) for each revenue data point (“X”).The data excludes stock-based compensation expenses. Gathered historical GAAP revenue and operating expense detail (S&M, R&D, G&A) from 100+ enterprise SaaS IPOs between 20.If you aren’t meeting the “Rule of 40” benchmark, how do you know where to better optimize? I recommend combining the “Rule of 40' with the benchmarks I’ve created below. While this is a helpful rule of thumb, it is fairly high-level and doesn’t differentiate between costs allocated to different parts of the business. Simply put, your growth rate and profit margin should add up to at least 40%.

#Operating expense vs cogs software

Historically, I would guide founders to benchmark their growth and expenses by using the “Rule of 40” which is a formula to analyze the health of a software business. Are your expenses in-line with other peers at your scale? This new post is focused on helping benchmark SaaS operating expenses (S&M, G&A, R&D) in more detail. I’ve written posts in the past aimed at helping founders benchmark their revenue growth and sales efficiency. Follow me on Twitter for my thoughts on startups and venture capital.