Most business software companies will tell you that a large salesforce is needed to sell your product to other companies.
Just look at some of the biggest enterprise software makers, like Salesforce and Workday, who all spend a huge chunk of their revenue on sales and marketing. In extreme cases like Box, sales and marketing costs accounted for almost twice the company’s revenue when it filed to go public in 2014.
But that hasn’t been the case with Atlassian, the work collaboration app maker that had one of the most successful tech IPOs last year. In the first half of 2015, only 21% of its revenue was spent on sales and marketing.
And even further bucking the trend, Atlassian disclosed in its first-ever earnings report on Thursday that it’s now spending a smaller portion of its revenue on sales and marketing, while continuing to grow the size of its business.
In the last three months of 2015, Atlassian spent $21.7 million on sales and marketing, or 19.7% of its total revenue. That’s almost 3 percentage points less than in the year-ago quarter, when it allocated 22.4% of its total sales on sales and marketing.
Meanwhile, its total revenue grew 45% to $109.7 million in the quarter, while beating street estimates across the board. It also gave guidance that exceeds analyst estimates for next quarter.
One cost that did increase however was R&D, which jumped 51% year-over-year. That shrunk the company’s operating income by 18% to $3.3 million, despite the growth in its revenue, causing the stock to decline roughly 2% in after hours trading.
“We’re not trying to sell you anything”
As the dust settles on Thursday’s earnings report, Atlassian’s progress reducing its sales cost may come more into focus.
Atlassian president Jay Simons says the decline in sales expenses is largely due to the viral nature of Atlassian, best-known for its JIRA and Hipchat software, and the changing sales process of business software. It used to be that CIOs would purchase software in bulk numbers, but now the adoption starts from the bottom, where employees start using it on their own before it gets deployed across the company.
“As you move up up-market, you don’t need to hire more salespeople,” Simons told us. “We’ve had a significant number of Fortune 100 companies, and it’s not like we knock on the CIOs office from the beginning.”
Instead, Simons focuses on making the pricing and adoption cost as transparent as possible in order to make it easy for small groups of people to test Atlassian’s products. It’s one reason why Atlassian makes sure every product has the exact price listed on its website, unlike some of the business software companies that ask potential customers to contact them individually for the big, enterprise packages.
“They don’t tell you the price because the sales person wants the customer to call and ask about it. But we’re not trying to sell you anything. We want you to buy it. And that’s a big difference there,” Simons said.
Given its growth, Atlassian’s strategy seems to be working. It says it added 2,600 net new customers during last quarter, up 27% year-over-year.