chart-scatter

FINANCE ACE, the community hub for Finance teams

Guides

Benchmarking FAQs

Our Public Company Benchmarking Tool will provide you with an abundance of metrics that are crucial to understanding how your company's performance ranks relative to competitors. Below we'll dive into the exact metrics used within the tool and how these metrics are calculated.

Revenue Growth YoY

A frequent metric used to measure the growth and health of a business, YoY Revenue Growth refers to a company's revenue growth year-over-year for the same calendar period. This metric is often presented on an annual basis (revenue growth from 2019 to 2020) or a quarterly basis (revenue growth from Q1 2019 to Q1 2020). YoY revenue growth essentially illustrates how a company is performing relative to that same calendar period last year.

  • Revenue Growth YoY (%) (Current Year/Period Revenue - Last Year/Period Revenue)/(Last Year/Period Revenue)

Gross Margin

A staple in financial analysis, Gross Margin refers to the portion of each dollar of sales revenue that a company retains as gross profit. The higher a gross margin the more capital a company retains for each dollar generated in revenue that can be used to cover operating expenses, invest in growing the business, or cover financing expenses. Gross Margin is one of the first profitability measures that is commonly analyzed and varies by company size, lifecycle and industry.

  • Gross Margin (%) (Total Revenue - Cost of Goods Sold)/(Total Revenue)

Sales & Marketing (S&M), Research & Development (R&D), General & Administrative (G&A) % of Revenue

Ratio analysis allows a business to measure its performance relative to its competitors irrespective of company size. A very common way that performance is measured is by comparing a company's operating expenses as a percentage of its revenue. Further, breaking down the operating expenses into segments (S&M, R&D, G&A) allows a company to more granularly benchmark itself against competitors, identify areas of improvement and set performance targets to hit operational milestones.

In the early stages of a company, spend (as a % of revenue) is higher as this is the growth phase and companies are actively deploying capital to grow the business. As companies mature, spend (as a % of revenue) typically decreases, relative to the growth phase, and becomes more consistent and predictable. (It's also worth noting that segment expenses used for this analysis typically exclude stock-based compensation).

  • S&M % of Revenue (S&M Expense) / (Total Revenue)
  • R&D % of Revenue (R&D Expense) / (Total Revenue)
  • G&A % of Revenue (G&A Expense) / (Total Revenue)

Net Margin

Often referred to as "Profit Margin", Net Margin refers to a company's net income as a percentage of revenue. This metric illustrates the portion of each dollar generated in revenue that a company retains as profit. It's important to point out that Net Margin is an accounting ratio and includes non-cash expenses (such as depreciation, amortization of prepaid expenses, etc.).

  • Net Margin (Net Income) / (Total Revenue)

Operating Cash Margin

A key measure of profitability and earnings quality, Operating Cash Margin is a cash-flow ratio that measures how well a company converts sales into cash. Since operating cash-flow excludes non-cash expenses (such as depreciation, amortization of prepaid expenses, etc.) it is a great indicator of earnings quality as it removes the effect of accounting tricks and looks purely at cash-flow.

  • Operating Cash Margin (Operating Cash-Flow) / (Total Revenue)

Efficiency

A relatively newer Saas metric that is often overlooked, Efficiency (or "Rule of 40") is a back-of-the-envelope metric that VC investors often use to gauge the financial health and attractiveness of a late-stage investment. In summary, the 40% rule states that a company's growth rate + profit margin should roughly add up to 40%. Like most metrics, the components used to calculate Efficiency depend on each specific company and the structure of its business.

  • Growth Rate Typically, the growth rate is defined as YoY Revenue growth for some defined period (we prefer Revenue growth as it adheres to GAAP and therefore becomes a better apples-to-apples comparison). Some companies use YoY ARR growth or YoY MRR growth. All three should roughly add up to the same growth rate for the same calendar period. Often times, one-time fees or other miscellaneous income skew this metric when revenue is used, so it's best to calculate all three growth rates (Revenue, ARR and MRR) to ensure they're all within a close range.
  • Profit Margin This portion of the equation gets tricky as several different profitability measures can be used - Free Cash Flow, Cash from Operations, Net Change in Cash, EBITDA, etc. We've favored using Operating Cash Margin as our profitability measure primarily due to that fact that we are wanting to measure the Efficiency of the business, and many metrics (such as Free Cash Flow Margin or Net Change in Cash) includes financing and investing cash-flows that can impact the outcome of the Efficiency metric and muddy the picture we are trying to paint. After all, the purpose of this analysis is to find balance between growth and profitability of the business (and therefore operations, not necessarily financing or investing).
  • Efficiency (YoY Revenue Growth + Operating Cash Margin)

Sales Efficiency

Although there are many ways to measure sales & marketing efficiency, a common way is to measure how much incremental revenue was generated for every dollar deployed in sales and marketing for a given period. Like most benchmark metrics, sales efficiency varies by company lifecycle, industry and size. Ideally, we'd want this metric to be greater than 1.

  • Sales Efficiency (This Period Revenue - Last Period Revenue) / (This Period Sales & Marketing Expense)

Data Sources

Accurate and transparent data is one of our top priorities at Trace. In an effort to fulfill this initiative, we have sourced all financial benchmarking data from reliable, credible and well-known sources. Our primary data source is EDGAR. We supplemented missing data fields (such as incorporation dates) from Bloomberg when necessary.

For data fields that required subjective categorizations such as Enterprise Market and Enterprise Category, our team conducted extensive research to ensure our internal classifications were consistent with reliable online sources. A few of those sources can be found below:

A full and complete list of the public companies included in our dataset, as well as their founding date, IPO date, enterprise market and enterprise category classifications can be found by following this link.

If you notice any data fields that are inconsistent with your internal/external sources, please email financeace@tracehq.com with your comments/concerns and we will happily take another look. We appreciate any efforts to improve our financial tools created for our community.

No items found.

Join the community to access every tool and template.

  • check

    Benchmark Public Comps

  • check

    Headcount Planning & Payroll Forecast

  • check

    Software Spend Management

  • check

    Inventory Management & Depreciation

  • check

    Vendor Assessment Template

Our Public Company Benchmarking Tool will provide you with an abundance of metrics that are crucial to understanding how your company's performance ranks relative to competitors. Below we'll dive into the exact metrics used within the tool and how these metrics are calculated.

Revenue Growth YoY

A frequent metric used to measure the growth and health of a business, YoY Revenue Growth refers to a company's revenue growth year-over-year for the same calendar period. This metric is often presented on an annual basis (revenue growth from 2019 to 2020) or a quarterly basis (revenue growth from Q1 2019 to Q1 2020). YoY revenue growth essentially illustrates how a company is performing relative to that same calendar period last year.

  • Revenue Growth YoY (%) (Current Year/Period Revenue - Last Year/Period Revenue)/(Last Year/Period Revenue)

Gross Margin

A staple in financial analysis, Gross Margin refers to the portion of each dollar of sales revenue that a company retains as gross profit. The higher a gross margin the more capital a company retains for each dollar generated in revenue that can be used to cover operating expenses, invest in growing the business, or cover financing expenses. Gross Margin is one of the first profitability measures that is commonly analyzed and varies by company size, lifecycle and industry.

  • Gross Margin (%) (Total Revenue - Cost of Goods Sold)/(Total Revenue)

Sales & Marketing (S&M), Research & Development (R&D), General & Administrative (G&A) % of Revenue

Ratio analysis allows a business to measure its performance relative to its competitors irrespective of company size. A very common way that performance is measured is by comparing a company's operating expenses as a percentage of its revenue. Further, breaking down the operating expenses into segments (S&M, R&D, G&A) allows a company to more granularly benchmark itself against competitors, identify areas of improvement and set performance targets to hit operational milestones.

In the early stages of a company, spend (as a % of revenue) is higher as this is the growth phase and companies are actively deploying capital to grow the business. As companies mature, spend (as a % of revenue) typically decreases, relative to the growth phase, and becomes more consistent and predictable. (It's also worth noting that segment expenses used for this analysis typically exclude stock-based compensation).

  • S&M % of Revenue (S&M Expense) / (Total Revenue)
  • R&D % of Revenue (R&D Expense) / (Total Revenue)
  • G&A % of Revenue (G&A Expense) / (Total Revenue)

Net Margin

Often referred to as "Profit Margin", Net Margin refers to a company's net income as a percentage of revenue. This metric illustrates the portion of each dollar generated in revenue that a company retains as profit. It's important to point out that Net Margin is an accounting ratio and includes non-cash expenses (such as depreciation, amortization of prepaid expenses, etc.).

  • Net Margin (Net Income) / (Total Revenue)

Operating Cash Margin

A key measure of profitability and earnings quality, Operating Cash Margin is a cash-flow ratio that measures how well a company converts sales into cash. Since operating cash-flow excludes non-cash expenses (such as depreciation, amortization of prepaid expenses, etc.) it is a great indicator of earnings quality as it removes the effect of accounting tricks and looks purely at cash-flow.

  • Operating Cash Margin (Operating Cash-Flow) / (Total Revenue)

Efficiency

A relatively newer Saas metric that is often overlooked, Efficiency (or "Rule of 40") is a back-of-the-envelope metric that VC investors often use to gauge the financial health and attractiveness of a late-stage investment. In summary, the 40% rule states that a company's growth rate + profit margin should roughly add up to 40%. Like most metrics, the components used to calculate Efficiency depend on each specific company and the structure of its business.

  • Growth Rate Typically, the growth rate is defined as YoY Revenue growth for some defined period (we prefer Revenue growth as it adheres to GAAP and therefore becomes a better apples-to-apples comparison). Some companies use YoY ARR growth or YoY MRR growth. All three should roughly add up to the same growth rate for the same calendar period. Often times, one-time fees or other miscellaneous income skew this metric when revenue is used, so it's best to calculate all three growth rates (Revenue, ARR and MRR) to ensure they're all within a close range.
  • Profit Margin This portion of the equation gets tricky as several different profitability measures can be used - Free Cash Flow, Cash from Operations, Net Change in Cash, EBITDA, etc. We've favored using Operating Cash Margin as our profitability measure primarily due to that fact that we are wanting to measure the Efficiency of the business, and many metrics (such as Free Cash Flow Margin or Net Change in Cash) includes financing and investing cash-flows that can impact the outcome of the Efficiency metric and muddy the picture we are trying to paint. After all, the purpose of this analysis is to find balance between growth and profitability of the business (and therefore operations, not necessarily financing or investing).
  • Efficiency (YoY Revenue Growth + Operating Cash Margin)

Sales Efficiency

Although there are many ways to measure sales & marketing efficiency, a common way is to measure how much incremental revenue was generated for every dollar deployed in sales and marketing for a given period. Like most benchmark metrics, sales efficiency varies by company lifecycle, industry and size. Ideally, we'd want this metric to be greater than 1.

  • Sales Efficiency (This Period Revenue - Last Period Revenue) / (This Period Sales & Marketing Expense)

Data Sources

Accurate and transparent data is one of our top priorities at Trace. In an effort to fulfill this initiative, we have sourced all financial benchmarking data from reliable, credible and well-known sources. Our primary data source is EDGAR. We supplemented missing data fields (such as incorporation dates) from Bloomberg when necessary.

For data fields that required subjective categorizations such as Enterprise Market and Enterprise Category, our team conducted extensive research to ensure our internal classifications were consistent with reliable online sources. A few of those sources can be found below:

A full and complete list of the public companies included in our dataset, as well as their founding date, IPO date, enterprise market and enterprise category classifications can be found by following this link.

If you notice any data fields that are inconsistent with your internal/external sources, please email financeace@tracehq.com with your comments/concerns and we will happily take another look. We appreciate any efforts to improve our financial tools created for our community.

Connect your ERP and see your data!

Trace is trusted with enterprise-ready security & compliance.

SOC2 Certified

Trace is SOC2 Type 1 compliant. Our audit was completed based on the trust services criteria relevant to security and confidentiality set forth in TSP 100, 2017 Trust Services Criteria for Security, Availability, Processing Integrity, Confidentiality, and Privacy.

AWS

Trace uses Amazon Web Services (AWS) for the hosting of staging and production environments. AWS data centers are monitored by 24×7 security, biometric scanning, video surveillance and are SOC 1, SOC 2, and SOC 3 certified.

SSO

Single Sign-on (SSO) allows you to authenticate users in your own systems without requiring them to enter additional login credentials. Authenticate through Okta, Google, Microsoft, and more.

  • Data Permissions & Access
  • Vulnerability Scanning
  • Incident Response
  • Training
  • Policies
More About Security

Looking for more advanced features?

Join the Trace Community for access to free downloads, tips and more.

Want more exclusive resources? Join the Finance Ace Community.

Finance Ace is a community hub for Finance professionals. Our members have access to a network of peers and high-quality tools, benchmark data, operating guides, and discussions.