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Why SaaS Saw Its Biggest Revenue Gain Since Recession

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Software companies led by entrepreneurs with experience in building successful software-as-a-service (SaaS) organizations are thriving. They as much as double revenue growth year-over-year, a new software industry report finds.

In other words, those in their second or third rodeos in SaaS software fare well.

The findings are reported in this month's 2014 Software & SaaS Financial Benchmarking Industry Report, the eighth annual study produced by Boston-based OPEXEngine in conjunction with the Software & Information Industry Association (SIIA).

"Far more well-funded, venture-backed, companies are hitting their stride with growth rates of 50 percent to 100 percent year over year, than ever before," Lauren Kelley, CEO and founder of OPEXEngine, told CMSWire. "Many of these companies are being established by entrepreneurs who have already built one or two, sometimes three, SaaS companies before, and managed by executives with equivalent experience. These executives can get a new company up and running far faster than five or 10 years ago when SaaS was a new management discipline." 

What the Numbers Say

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The report found the private US software industry is experiencing its biggest revenue gains since the recession and almost 40 percent higher than last year’s revenue growth rate. Private and public companies are showing a significant shift in focus from profits to investment, spending over revenues in order to gear up for further growth and job creation, according to the report.

OPEXEngine surveyed several hundred private and public US firms with revenues between $1 million and $450 million, with a focus on SaaS metrics. Kelley told CMSWire about two-thirds of the participating companies have participated in OPEXEngine's software benchmarking, and the rest were new companies this year.

Over the past eight years of benchmarking the software and SaaS industries, approximately 57 percent of OPEXEngine’s benchmarking participants have IPO’ed or been acquired, or both, Kelley added.

Key findings include:

  • Median revenue for private software firms rose almost 42 percent year over year, the highest percentage increase since the 2008 recession, and almost 40 percent higher than last year’s revenue growth rate of 30.5 percent
  • Revenue for all public companies included in the survey rose an average of 18 percent in 2013, while revenue growth for public SaaS companies averaged almost 30 percent
  • Private firms plan to increase employee headcount by 26 percent (a 3.5 percent increase over 2013 plans) by the end of 2014, while public companies project a nearly 27 percent gain in 2014 headcount

Surprises?

Kelley said her organization's seeing more SaaS companies providing professional services at unprofitable margins. 

"The competition to acquire customers today is hotter than ever, as more companies fight to establish themselves as market leaders," Kelley said.

Private SaaS and software companies, she added, continue to have access to significant amounts of start-up and growth capital, this year at levels greater than since 2000. This, Kelley told CMSWire, allows them to spend beyond revenues far beyond the start-up stage.

"We see SaaS companies with operating expenses running at negative 150 percent or more," Kelley said. "In the tech industry, we tend to forget that other industries do not have the same access to start-up and growth capital as tech companies do."

Why Growth? 

Software delivered as a service through the cloud, Kelley said, is achieving greater acceptance by large companies and enterprise IT departments, driving further market growth. 

"The most successful companies have easily adopted business applications with clearly defined value propositions for their target market," Kelley said. "In addition, they have efficient sales and marketing machines, and access to significant capital in order to invest in acquiring customers and expanding in new markets."

Who's particularly winning? Applications with the most clearly defined value propositions tend to be the hottest growth companies, Kelley said.

"They tend to be in the areas of ERP and CRM and any application which helps companies sell to and support customers," she said. "Marketing analytics and customer success management are hot, growing segments with companies competing to provide most immediate business results for customers." 

Title image by T photography / Shutterstock.com.

 
 
 
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