Study: SaaS-based Companies Show Renewed Focus on Investment

Software as a service (SaaS) has been receiving a lot of love from the marketplace these days. (It’s not a well-kept secret.) But what many people may not realize is SaaS-based providers are now renewing their focus on investment to accomodate future growth.

According to a software-focused study released last week by Software & Information Industry Association (SIIA) and conducted by OPEXEngine, both private and public software companies are investing in people. Private vendors expect to increase employee headcount by 26 percent by the end of 2014, while public companies project an increase of nearly 27 percent in 2014 headcount.

The study also compares software firms in various geographic regions and finds that median revenue growth for private East and West Coast firms is twice that of private companies in the Central and Mountain regions, mainly because of the role private investment firms play.

“The vast majority of venture firms are located on the coasts,” OPEXEngine CEO Lauren Kelley told Talkin’ Cloud. “They traditionally have focused most of their efforts on local firms; there is a symbolic relationship between VCs, money and entrepreneurs which contributes to the growth of firms on the West and East coasts.”

When it comes to venture-funded firms, they “spend the largest percentage of company expenditures on sales and marketing,” she said.

“Median sales and marketing spend for private firms was 61.2 percent of revenues in 2013,” Kelley said. “Even the largest public SaaS firms spend the largest percentage of revenues on sales and marketing; Salesforce.com continues to spend approximately 50 percent of revenues on sales and marketing.”

“For companies with a clear market opportunity, a strong product and efficient sales and marketing machines, investment for growth is a smart strategy,” she explained. “However, for companies in crowded application spaces where numerous venture-backed firms are competing for the same customers, not all companies will succeed.”

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