Atlassian, which makes software for teams to work together more efficiently, just filed to go public, and there’s one area that makes it stand out from the rest of the pack: its unusually low sales and marketing cost.
According to its S1, Atlassian spent $US67.9 million on sales and marketing in the first half of 2015. That’s just 21% of its total revenue of $US319.5 million. That ratio is a slight jump from the previous two years, when it spent 16% (2014) and 12.5% (2013) of its revenue on sales and marketing, respectively.
This is an unusual feat — almost an outlier — for a young software-as-a-service (SaaS) company. These companies typically spend huge amounts on sales and marketing to gain customers, reckoning that the lifetime value of those customers will make the initial sign-up costs worthwhile.
Tomasz Tunguz, a partner at VC firm Redpoint Ventures, wrote in a blog post that SaaS companies on average spend 80% to 120% of their revenue on sales and marketing during their first three years. That spend plateaus to around 50% of revenue from year 5 and forward.
Salesforce, a pioneer in the SaaS space, spent about 56% of its revenue on sales and marketing when it filed its S1 in 2003. Workday, another SaaS leader, reported 45% of its revenue on sales and marketing in its S1, while smaller players like HubSpot had a 64% ratio when it went public last year.
One of the most extreme cases, Box, had spent nearly 2x its revenue on sales and marketing in 2013, the year before it first filed to go public.
There are several reasons for the high cost of sales and marketing in the enterprise, including long sales cycles and the difficulty of convincing some customers to move parts of their businesses to the cloud.
But Atlassian seems to be bucking the trend by mostly relying on word of mouth and simple viral marketing. It even states in its “risk factors” that maintaining this strategy is essential to the company’s continued growth:
Unlike traditional enterprise software vendors, who rely on direct sales methodologies and face long sales cycles, complex customer requirements and substantial upfront sales costs, we utilise a viral marketing model to target new customers. Through this word-of-mouth marketing, we have been able to build our brand with relatively low sales and marketing costs.
“We do not have a direct salesforce and our sales model does not include traditional, quota-carrying sales personnel. Although we believe our business model can continue to scale without a large enterprise salesforce, our viral marketing model may not continue to be as successful as we anticipate and the absence of a direct sales function may impede our future growth.”
Atlassian states that it has added some marketing personnel recently, but it has no plans to significantly increase spending in this area.
“While we expect marketing costs to continue to increase in total, we do not expect to make similarly significant investments on such campaigns and we do not expect marketing expenses as a percentage of total revenues to increase for the foreseeable future,” it writes.
Despite all this, Atlassian seems to have no trouble getting large customers willing to sign big checks. The S1 says Atlassian has 864 customers that spent “at least $US50,000 in fiscal 2015,” including Adobe, Visa, and Toyota.
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