Two metrics we use to compare software businesses are revenue per employee and operating expense (“opex”) per employee. Note that opex includes R&D, S&M, G&A, but excludes COGS. In our view these are great measures of operational efficiency. What is a reasonable amount of rev/head and opex/head in SaaS? The data from the last 81 SaaS IPOs is below (since October 2017).
Why we use recent IPO’s. The reason we like looking at companies at the time of IPO is because: i) an IPO is an exit event that receives intense investor scrutiny so companies tend to really tighten and optimize operations; and ii) companies at IPO are closer to the Series A to Series D companies that we invest in.
Headcount. The median headcount of these companies at IPO was 933 with the average coming in slightly higher at 1427. The largest company was McAfee (6850 employees) and the smallest was Expensify (140). Note the past 10 IPO’s, which goes back to Hashicorp in December 2021, had much higher headcounts with a median and average of 1650 and 2129.
Revenue per head. Rev/head on median was $199k and the average was $232k. That said, the past 10 IPO’s had a median and average of $214k and $245k.
Opex per head. Opex/head on median and average was $186k and $218k. Remember our definition of opex includes R&D, S&M, and G&A, but excludes COGS. The past 10 IPOs had a median and average of $253k and $307k.
The difference is small. The difference between revenue/head and opex/head is quite tight and indeed once you factor in COGS, only 21 out of the 81 generated operating income.
Thank you for your readership. Visit us at blossomstreetventures.com for more SaaS data and blogs. Email the author at sammy@blossomstreetventures.com or connect on Linkedin.
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