saas benchmarking and metrics - saas r&d …public company r&d factor ($, millions) public

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SaaS R&D Productivity Report 2018 OPEXENGINE SAAS BENCHMARKING COMMUNITY WHITEPAPER

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About OPEXEngine:

OPEXEngine is the industry leader in delivering financial and operating benchmarks for the SaaS

sector, with a particular expertise in performance measurement and operating metrics for

subscription-based companies. OPEXEngine has worked with hundreds of leading private and

public Software and SaaS companies since 2007. OPEXEngine’s member-based benchmarking

community supplies the comprehensive data for the annual benchmarking. OPEXEngine’s

benchmarking reports are key tools used by senior operating executives to support budgeting,

strategic planning and investment processes. For further information, visit www.opexengine.com.

About this Report:

This report represents an analysis of research and development (R&D) productivity benchmarks

for SaaS companies. T he following charts were prepared using OPEXEngine’s

BenchmarkEngine™, OPEXEngine’s EdgarEngine™ and proprietary statistical analysis.

Methodology:

OPEXEngine gathers company data through a secure process, provides for its consistency through

company consultations and automated processes, and protects confidentiality through aggregating

and anonymizing data into benchmarks. Data from OPEXEngine’s BenchmarkEngine™ proprietary

database of over 300 B2B SaaS companies has been combined with data from OPEXEngine’s

EdgarEngine™ to create a database of public and private companies for this report. Data was

pulled for fiscal years 2015 and 2016 to compare previous year R&D expense against the next

year’s net revenue gain. Data in this report is presented as medians unless otherwise stated.

Companies are segmented according to whether they are private or public, and further by

company revenue size.

All data in this report is covered by OPEXEngine’s copyright, 2018.

Goals of this Report: This report is designed to help you benchmark the expense and productivity of your R&D

operations against similar companies for budgeting and planning purposes. OPEXEngine

benchmarks support you through:

• Equipping you with SaaS sector R&D benchmark metrics;;

• Framing fact-based discussions with management, colleagues, boards, investors and

potential investors;;

• Providing actionable insights to help you allocate your resources to grow efficiently.

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TABLE OF CONTENTS

I. OPEXENGINE INSIGHTS

II. THE R&D FACTOR

III. PRIVATE COMPANIES <$50M

IV. PRIVATE COMPANIES >$50M

V. PRIVATE COMPANIES – IPO TRACK

VI. PUBLIC COMPANIES <$400M

VII. PUBLIC COMPANIES >$400M

VIII. ABOUT OPEXENGINE

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I. OPEXENGINE INSIGHTS The report focuses on R&D investments by SaaS Companies. As innovative technology companies,

SaaS companies are continually investing in building best-in-class products. Yet, it is not clear to

many SaaS executives what the optimal level of R&D spending should be to grow revenue and

sustain a leadership position.

To help financial and operating professionals to assess whether they are investing optimally in

R&D, we have developed a metric -- the R&D factor -- that links the incremental revenue growth resulting from R&D expenditures. The R&D factor should not be looked at in isolation. Obviously,

many other operations are drivers in generating revenue. Sales & Marketing in particular is critical

for successful product launches and new product revenue. When benchmarking the “R&D Factor”

of SaaS companies, of different sizes and stages of growth, it does provide valuable insights into

how to allocate R&D resources and evaluate the effectiveness of R&D investment.

Within overall R&D spending, it is also important to track carefully the percent of total R&D

expense spent on new development versus the percent spent on tech debt or product

maintenance (typically viewed as necessary to keep customers satisfied and maintain the

technology base for products). High tech debt can indicate problems in your R&D organization

and management, or can be necessary because of changing technologies and standards.

Investment to reduce tech debt is necessary, but doesn’t contribute directly to revenue growth

and every tech company has to balance their R&D spending between maintenance and driving

new revenue. If there’s too little spending here, the effects will be felt at some point in the

future—particularly with the existing customer base, which is critical for high renewal rates and

recurring revenues. If there’s one assumption you can make in the tech industry, it is that

technology will keep evolving and you’ll need to invest to keep your products current.

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I. OPEXENGINE INSIGHTS (Continued)

PRIVATE COMPANIES Private companies under $50 million

• Private companies under $50 million in revenue should target an R&D factor of 1.7 or higher,

meaning that they get at least $1.70 in new revenue for every dollar they spend in R&D.

• One-third of companies in this segment are achieving R&D factors over 1.7 in combination with

growth rates of 33 percent or higher. These top performers have median R&D factors of 2.5 in

combination with median growth rates of 53 percent.

• A third of companies in this segment have R&D factors under 1.0, essentially failing to

recuperate R&D expenses through growth.

Private companies over $50 million

• Private companies over $50 million in revenue should also target an R&D factor of 1.7 or

higher, but may not be able to couple this with high growth.

• A third of these companies in this segment were able to maintain this level of R&D

productivity, and only half of these could maintain growth rates of 33 percent or higher.

• Half of private companies over $50 million have R&D factors of 1.0 or lower, essentially failing

to recuperate R&D expenses through growth..

Private companies – IPO track

• Private companies from the OPEXEngine historical data en route to successful IPOs had a

median R&D factor of 1.8.

PUBLIC COMPANIES Public companies under $400 million

• A quarter of the companies in this segment were able to maintain strong R&D productivity.

The median R&D factor for top performers is 2.8 compared to the median for the segment as a

whole of 1.3.

• Nearly one-third of companies in this segment have R&D factors below 1.0 including several

companies with negative R&D factors reflecting declining revenues.

I. OPEXENGINE INSIGHTS (Continued)

Public companies over $400 million

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• Public companies over $400 million in revenue should target an R&D factor of 1.8 in

combination with a growth rate of 25 percent or higher.

• An estimated one-third of companies in this segment maintain this level of performance. The

median R&D factor for top performers is 2.3 compared to the overall median of 1.5.

• Fewer than 30 percent of companies in this segment have R&D factors of under 1.0 and none

had negative R&D factors.

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II. THE R&D FACTOR At the highest level, the best and clearest way to track R&D productivity is our “R&D

Factor”. This calculation tracks how much new revenue is associated with each R&D dollar. It

is valuable to compare your organization’s R&D performance measure against competitors,

peers and market leaders. Obviously, R&D alone doesn’t create new revenue, the rest of the

organization has to perform effectively and fire on all cylinders as well. Companies cannot

produce new revenue with even the greatest of products if they are not effectively marketed

and sold. Benchmarking the R&D factor provides useful insights into R&D productivity by

using a simple, apples-to-apples comparison for all companies.

The R&D performance measure is calculated by:

(This year’s revenue minus last year’s revenue) ÷

Last year’s R&D expense

…think the Magic Number for R&D.

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III. PRIVATE COMPANIES <$50M

• Private companies under $50 million in revenue should target an R&D factor of 1.7 or

higher, meaning that they get at least $1.70 in growth for every dollar they spend in R&D.

• A third of companies in this segment are achieving R&D factors over 1.7 in combination

with growth rates over 33 percent. These top performers have median R&D factors of 2.5

in combination with median growth rates of 53 percent.

• The median R&D factor of private companies under $50 million is 1.3.

• A third of companies in this segment have R&D factors under 1.0, essentially failing to

recuperate R&D expenses through growth.

• Private companies under $50 million are investing an estimated 24 percent of revenues

with a subsequent revenue growth rate of an estimated 35 percent.

• Top performing companies are investing at essentially the same levels but enjoying much higher growth rates.

$3.3

$3.9

$2.89

$9.5

R&D Expense

Change in Revenue

Private Company R&D Factor($, Millions)

Private <$50M Private <$50M Top performers R&D Factor

1.3

2.5

24%

35%

25%

53%

R&D Expense Rate

Revenue Growth Rate

Private Company R&D Productivity(% of Revenue)

Private <$50M

Private <$50M Top performers R&D Factor

1.3

2.5

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IV. PRIVATE COMPANIES >$50M

• Private companies over $50 million in revenue should target an R&D factor of 1.7 or

higher, but may not be able to couple this with high growth.

• While a third of private companies over $50 million in revenue were able to maintain this

level of R&D productivity, only half of them were growing at rate higher than 33 percent.

• The median R&D factor of private companies over $50 million decreases to 1.0, over 20

percent less than for private companies under $50 million. The median R&D factor for top

performers was 2.6.

• Private companies over $50 million have a median R&D expense of $11.3 million

supporting a change in revenue of $11.8 million.

• Private companies over $50 million are investing an estimated 16 percent of revenues, or a

third less than smaller private companies, with subsequent revenue growth rate

proportionately lower, at an estimated 22 percent.

• Top performers are spending marginally less on R&D as a percent of revenue but reaping

significantly higher growth rates.

$11.3

$11.8

$7.24

$18.25

R&D Expense

Change in Revenue

Private Company R&D Productivity($, Millions)

Private >$50MPrivate >$50M Top performers

R&D Factor

1.0

2.6

16%

22%

13%

37%

R&D Expense Rate

Revenue Growth Rate

Private Company R&D Productivity(% of Revenue)

Private >$50MPrivate >$50M Top performers R&D Factor

1.0

2.6

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V. PRIVATE COMPANIES – IPO TRACK

• Private companies from the OPEXEngine historical data en route to successful IPOs had a

median R&D factor of 1.8.

$8.4

$13.9

R&D Expense

Change in Revenue

Private Company - IPO Track R&D Factor($, Millions)

Private companies - IPO track R&D Factor

1.8

27%

50%

R&D Expense Rate

Revenue Growth Rate

Private Company IPO Track R&D Productivity (% of Revenue)

Private companies - IPO track R&D Factor

1.8

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VI. PUBLIC COMPANIES <$400M

• Public companies under $400 million in revenue should target an R&D factor of 2.2 or

higher in combination with a growth rate over 40 percent.

• A quarter of the companies in this segment were able to maintain this level of

performance. The median R&D factor for top performers is 2.8 compared to the median for

the segment as a whole of 1.3.

• Nearly one-third of companies in this segment have R&D factors below 1.0 including

several companies with negative R&D factors reflecting declining revenues.

• Public companies under $400 million, are investing in product development and tech debt

at rates of 22 percent, higher than private companies over $50 million. Their median

revenue growth rate, at 32 percent, is also higher than private companies over $50 million.

• Top performers are investing marginally less but reaping growth rates nearly twice as high.

$30.9

$37.0

$26.4

$74.2

R&D Expense

Change in Revenue

Public Company R&D Factor($, Millions)

Public <$400MPublic <$400M Top performers

R&D Factor

1.3

2.8

22%

32%

21%

58%

R&D Expense Rate

Revenue Growth Rate

Public Company R&D Factor($, Millions)

Public <$400MPublic <$400M Top performers R&D Factor

1.3

2.8

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VI. PUBLIC COMPANIES <$400M (Continued)

• Companies with the highest R&D factors among public companies under $400 million are

maintaining growth rates above 40 percent.

4.6

3.2

3.1

3.0

2.8

2.7

2.6

2.6

2.5

2.2

19%

13%

22%

22%

23%

18%

16%

25%

21%

22%

90%

41%

70%

64%

65%

49%

42%

66%

52%

47%

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

SHOPIFY INC.

APPFOLIO INC

MULESOFT, INC

NEW RELIC, INC.

COUPA SOFTWARE INC

HUBSPOT INC

ELLIE MAE INC

TWILIO INC

CARBONITE INC

BLACKLINE, INC.

Top R&D ProductivityPublic Companies <$400 Million

R&D Factor R&D Expense as a Percent of Revenue Revenue Growth

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VI. PUBLIC COMPANIES <$400M (Continued)

• An estimated one-quarter of public companies under $400 million have R&D factors under .8 in

combination with low growth rates of 14 per cent or less.

• Three companies, Seachange International, Marin Software and LivePerson have negative R&D

factors reflecting decreasing revenues.

0.8

0.7

0.5

0.2

0.2

0.2

0.0

-0.2

-0.3

-0.4

16%

19%

22%

41%

20%

27%

7%

37%

31%

16%

13%

14%

12%

10%

4%

4%

0%

-7%

-8%

-7%

-0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

CHANNELADVISOR CORP

MODEL N, INC.

BRIGHTCOVE INC

MOBILEIRON, INC.

BAZAARVOICE INC

JIVE SOFTWARE, INC.

SERVICESOURCE INTERNATIONAL, INC.

SEACHANGE INTERNATIONAL INC

MARIN SOFTWARE INC

LIVEPERSON INC

Bottom R&D ProductivityPublic Companies <$400 Million


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VII. PUBLIC COMPANIES >$400M

• Public companies over $400 million in revenue should target an R&D factor of 1.8 in

combination with a growth rate of 25 percent or higher.

• An estimated one-third of companies in this segment maintain this level of performance.

The median R&D factor for top performers is 2.3 compared to the overall median of 1.5.

• Just under 30 percent of companies in this segment have R&D factors under 1.0 and none

are negative.

• Public companies over $400 million have a median R&D expense of $125.9 million,

supporting a median change in revenue of $160.7 million.

• Public companies over $400 million are investing in R&D at rates of 18 percent, lower than

the 22 percent for public companies under $400 million in revenue. Their revenue growth

rate, at 26 percent, is lower than the 32 percent experienced by public companies under

$400 million in revenue.

• Top performers are investing at lower rates and enjoying higher rates of growth.

$125.9

$160.7

$41.2

$165.0

R&D Expense

Change in Revenue

Public Company R&D Factor(% of Revenue)

Public >$400MPublic >$400M Top performers R&D Factor

1.5

2.3

18%

26%

13%

31%

R&D Expense Rate

Revenue Growth Rate

Public Company R&D Factor(% of Revenue)

Public >$400M

Public >$400M Top performersR&D Factor

1.5

2.3

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VII. PUBLIC COMPANIES >$400M (Continued)

• Top R&D productivity performers from public companies over $400 million, with the

exception of Tyler Technologies, have a lower range of R&D factors, from 1.8 to 2.4., in

comparison to public companies under $400M.

5.5

2.4

2.3

2.0

1.8

5%

20%

13%

12%

22%

28%

49%

31%

25%

38%

0.0 1.0 2.0 3.0 4.0 5.0 6.0

TYLER TECHNOLOGIES INC

PALO ALTO NETWORKS INC

VEEVA SYSTEMS INC

CORNERSTONE ONDEMAND INC

SERVICENOW, INC.

Top R&D ProductivityPublic Companies >$400 Million


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VII. PUBLIC COMPANIES >$400M (Continued)

• Bottom R&D productivity performers from public companies over $400 million are investing

higher than average numbers in R&D despite decent to strong revenue growth, resulting in

lower R&D factors.

• If these companies are investing productively, their R&D factor should improve.

1.0

0.8

0.8

0.3

44%

31%

24%

45%

43%

27%

18%

15%

0.0 0.2 0.4 0.6 0.8 1.0 1.2

ATLASSIAN CORP PLC

TABLEAU SOFTWARE INC

MEDIDATA SOLUTIONS, INC.

FIREEYE, INC.

Bottom R&D ProductivityPublic Companies >$400 Million


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VIII. ABOUT OPEXENGINE

Benchmark Data, Content and Community Platform

• Proprietary data platform

• Non-GAAP metrics and KPIs

• Annual benchmarking since 2007

• 300+ participating companies and growing

We deliver actionable operating benchmarks for Cloud, SaaS and software companies to see where they are going and how to get there

EARLY STAGE GROWTH STAGE ENTERPRISE

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VIII. ABOUT OPEXENGINE (Continued)

For more information about OPEXEngine or OPEXEngine’s SaaS benchmarks, please contact us at [email protected]

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