Buffer, a startup that provides social media management tools, today posted a breakdown of how its spends its revenue on salaries, servers and other expenses. The post is sufficiently detailed and worth examining, as it includes a number of data points that we, the public, tend to lack about private companies.
Contrary to what some haters will tell you, not all SaaS companies burn cash. Buffer has a cash profit per month of around $15,000, off of pure monthly recurring revenue — SaaS MRR — of $410,000. The company’s bookings are a bit higher due to the existence of some pre-paid plans.
The next question is simple: If Buffer is managing consistent, if modest profitability on a non-GAAP cash basis, how quickly is it growing? The mantra from fans of SaaS economics is that short-term losses are irrelevant, provided that certain ratios are in place that imply the long-term value of purchased revenue will meet a number of thresholds.
So, if Buffer is making money, is it growing slowly? No. The company has, according to its public revenue dashboard, grown its annual run rate from $2.143 million a year ago, to $4.832 million today, or 125 percent. Certainly, Buffer isn’t among the largest SaaS companies on a revenue basis, but at the same time, it has shown that a company can expand its top line and not invite persistent cash burn.
(Normal caveat: Yes, in some contexts, you want to burn if you are a SaaS-based company. Here I want to merely indicate that it is not the only option.)
I spoke to the company in advance of today’s data release, and asked how it balances revenue growth, and the expansion of its costs. CEO Joel Gascoigne responded in the following way:
“Our goal will always be to reinvest and do all we can to improve Buffer for our customers, as well as grow the team so that more people can have the freedoms that working at Buffer provides compared to other jobs.
At the same time, we see that naturally our revenues will grow faster than we are able to grow the team, because we are building a software product which is an industry known to be very scalable.
We’ve seen so far that our Average Revenue per Employee has consistently grown over time. We’ve also found that our costs have grown much more slowly than our revenue and customer base has.
That’s a decently enviable place to be. In short, presuming that the company sees its past trends continue, it will automatically see its margins improve. Regarding margins, on a gross basis, Buffer is quite strong, and on a net basis less so.
It will be interesting to see if the company converts more of its revenue into ad expenditures over time to help maintain its revenue growth rate. The law of large numbers counts whenever you want compound growth. For reference, the company spent a mere 1.8 percent of its revenue on advertising in recent months.
Recently armed with more than $3 million, the company certainly has the flexibility to do so.