We all realize the SGA is very high on these fast growing names because they are investing on the growth. The expectation is the SGA as % of revenue will come down as the company grows, and the renewals (for SaaS) do not require same SGA support as new sales. One way of measuring SGA spend is, just like telecom companies do, measure new customer acquisition cost. You could take the additional SGA between the comparing periods vs revenue or customer count. If you track over a period of time you should see this cost come down and at some point stabilize. If this cost is stabilizing, that is the indicator the company has reached its leverage point, i.e., you are not up selling, i.e., you are not increasing the $$$ value of sales to existing customers, or sometimes it could also show retention issues.
I don’t think currently companies share this number, but should not be difficult to calculated.
I think we would all agree, and I’ve been interested in trying to figure out how to calculate LTV to CaC.
“The model” says the ratio should be 3:1. But very few companies discuss this and it would be interesting to understand how to parse this out from financials we get to see.
I’m sure smarter minds than us have thought about it. But if there is a way to do it, I’d like to know.
For instance, I recently saw where ESTC has an extremely low cost to acquire new customers.
if there is a way to do it, I’d like to know
Companies track it all the time. When you are selling across verticals or different industries, etc, to see where you can sell easily vs where the cycle takes longer, etc, which means higher SGA. This is one matrix internally we use to decide whether to pursue some industries and customers.
Not difficult in my opinion. Even a simple measure like what is the additional SGA between any two quarters vs additional revenue should help us start. But there are lot of variables to take into account. Your SGA may not be linear, meaning, you get to leverage certain SGA investment upto say $1B in sales and when that increases you need additional investment, expanding geographically, industries, verticals, new products etc, all of this creates noise, so you need to track this for multiple quarters to get a sense of how this tracks and also, as the revenue increases this noise get muted. Because of explaining the lumpiness and variance is challenging, I guess, companies don’t share this number.
Here’s that link where’re you probably saw Elastic’s time to recover CAC.
There’s a chart that compares some SaaS IPOs in 2018. Elastic is the best in the group, but SMAR and ZS also do good.
Interestingly #3 on the list Smartsheet CFO Jen Ceran was also CFO of #2 Dropbox. A recent podcast interview she highlighted LTV:CAC as an important metric in her philosophy. SMAR is usually around 7, and she gets very proactive if it starts to creep towards 5.
She’s a dynamo, here’s the interview for anyone interested.
Thanks for this about Jen…and thanks to others here…like tchalla for his summary data (I’m a visual learner) and Bear for his conviction. I’ve added big to ESTC lately and have been watching SMAR…I like that the podcast interviewer was all about background.
I usually just lurk here but maybe this can help someone who worries about nonGAAP numbers and comments like this …and loss per share of $0.19-0.18 (consensus: $0.15 loss). that supposedly took SMAR down earlier this month…
She’s a dynamo
…but more importantly, she came up through the Sara Lee, Cisco, treasury jobs…and headed Ebay/Paypal treasury department during the recession. #1 (my thought) is working capital…she follows cash…if she’s comfy with GAAP losses so am I. She has concentrated on financial planning and guidance through her background…then learned to put on a public face in IR departments. I know the company has been issuing stock to fund working capital. Opex that’s growing at same pace as sales (50-55% p.a.) is ok for the earnings growth that’s coming…and the CAC ratio of 7x that we know will support positive cash flow shortly…just look at 134% retention too.
Aside: My brother was treasurer at Stratacom in the late '90’s when Cisco acquired them and was in treasury at Cisco just before Jen showed up in 2000. My finance for entrepreneurs mentor, he left Cisco to be treasurer at Verifone.
who also likes Jen’s drive to self-improvement and the “live within our means” culture that she found at SMAR even before she arrived.