Brad Feld

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Metrics for An Enterprise Software Company

Feb 03, 2007
Category Management

Paul Kedrosky has a superb post up today titled Building the Perfect Board Package.  The entire post is worth a slow and careful read as it’s “guidance on the subject from a sales-guru colleague to a company’s management on whose board he sits.”

Buried deep near the end is the real gem – metrics for a “perfect enterprise software company” that would trade at 3x revenue (or significantly higher if a SaaS model).

Revenue (License / Service) 55/45
License to Service Gross Margin 75%
License GM 94%
Service GM 55%
Operating Costs 60%
Sales 29%
Marketing 8%
R&D 9%
G&A 8%
Operating Margin 15%
S&M Costs as a percent of Rev 68%

If you run an enterprise software company and need something to benchmark to in your “stable state” (after you’ve become profitable and are growing at a nice clip), here’s a model.