#The magic number free

What Financial Ratios Should You Go Public With?… And What Should They Look Like Longer Term? - P&L ratios at various stages of their growth curve, from pre-IPO through to large scale, and why there is no ‘ one size fits all’.

SaaS Financial Benchmarking… One Size Doesn’t Fit All, and Focusing on Gross Profit - benchmarking growth, margins and opex items.

Introduction - SaaS ‘Burn Productivity’… Better Than Magic Number and Rule of 40? ‘Burn Productivity’… A Consistently Better Signaler of SaaS Valuation Next, we show how ‘a broader ’Burn Productivity’ has been more tightly correlated to Valuation over time: 4. N = 36 at $150M ARR, n = 47 at $250M ARR, n = 28 at $600M ARR So What? Magic Number and Rule of 40 Are Helpful, For NowĪs of 1Q 2020, a higher valuation is generally correlated with a higher Magic Number and Rule of 40, but this relationship has not necessarily held strongly over time nor as companies scale. See below for an example of the top and bottom-5 companies as measured by RV at the time they hit $250M ARR, alongside their Magic Number at the time. 0.7x RV multiple, and placing it in the bottom quartile. Conversely, LogMeIn reached $250M ARR in 2Q 2015 and traded on 4.9x NTM revenue, vs. At this time, Zscaler also had a Magic Number of 0.8x.

This puts it squarely into the top quartile of RV for all companies that reached $250M in ARR. the SaaS median at the time of 9.1x, Zscaler would have had a RV multiple of 2.0x. Relative Valuation (“RV”) in this sense, using an example, means that when Zscaler was trading at 17.7x NTM Revenue at the end of 3Q 2018 (at $253M ARR) vs. the median ARR at IPO for SaaS companies), this next analysis looks at each company’s relative valuation at this point in time, and the Magic Number / Rule of 40 the company possessed. Looking back in time to when SaaS companies hit $250M in ARR (i.e. R Square Smoothed Across Last 4 Quarters Can These Metrics Differentiate Great Companies From Good? … Not Really

#The magic number free

Certain company stages in their growth lifecycleįeel free to drop me a note if you have any questions or thoughts.We discuss these two metrics below relative to: However, this hasn’t always been the case over time, as shown in this analysis.īurn Productivity - is much better correlated over time. There are good reasons to use these metrics -there are many resources available online that go into these in detail - strong performance of these numbers are typically correlated with stronger valuation multiples, as they are today. Instead, there are a host of various different metrics that are used to assess the company’s broader growth and efficiency - with the better known ones being the Magic Number and Rule of 40. However, one size does not fit all given differences in market, product and go-to market motion. Magic Number and Rule of 40… Helpful, For Nowįinancial ratios ( link) are partially helpful in allowing entrepreneurs and executives to benchmark SaaS companies by which to shape their own company’s growth.