Operating Income 2016, The Softletter Benchmark 53, Executive Summary

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About the Softletter Benchmark 53

We have completely revamped our Benchmark 50, now the Benchmark 53, to reflect the profound changes the software industry has undergone over the last several years. The profiled are now broken into eight segments that provide a representative overview of industry trends and performance.

The Softletter Benchmark 53 are all publicly-held companies and most of our basic business metrics are derived from documents these companies are legally required to provide to investors. When we believe circumstances warrant it, we do adjust these numbers to reflect financial reality.

Please note that in June we will update these numbers to include the 2015 numbers. The reason for not posting these numbers before is that a) a significant number of companies revise their initial 10-Ks soon after their release and b) because of fiscal year considerations, some 10-Ks are not available at the end of the calendar year.

Operating Income (OI) is a rubber hits the road metric that measures a company’s underlying profitability. When calculating OI, Operating income takes a company’s gross income (revenue minus COGS) and subtracts other operating expenses such as office supplies, heating and air conditioning, and electricity. It also does incorporate investments in other companies, taxes, and non-recurring expenses such as lawsuits. OI is represented as a percentage of sales revenues. It is quite possible for a company to show positive OI numbers and yet not be technically profitable (Hollywood accounting), though favorable numbers over time are a powerful indicator of a company that’s succeeding in its underlying business model.

A point to note is that if you love the color red, OI is your metric. Negative numbers are common in contested segments, particularly in SaaS, where companies turn to public markets to fund war chests for long-term plays to achieve market dominance. There’s recently been a fair amount of criticism aimed at this strategy (see Softletter editor Rick Chapman’s review of Disrupted by Dan Lyons), but shareholders in firms such as Salesforce.com, which has never been profitable since it went public, have made out handsomely (if you bought and held onto your original shares.)

Operating Income, 2013 – 2014, The Softletter Benchmark 53, Executive Summary

 Company Categories  Software Company Operating Income Percentages 2014 Percentages (Median)  Software Operating Income Percentages 2013 Ratios (Median)
Big Four 34%   32%
SaaS Sales and Marketing -7%  -4%
SaaS Enterprise   -22% -17%
SaaS B2B/C Verticals  -3%  -4%
Mobile B2B  -50%  -22%
Mobile B2C 1%  -4%
Social Networking -7% 3%
On Premise 18% 18%







Complete analysis of the Benchmark 53 companies is available to Softletter subscribers.


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