Glossary of Terms

Please use US dollars. If you need to convert currency, use whatever method you’ve standardized on

Ideally your 2020 results correspond with calendar 2020. However, we recognize that some companies’ fiscal years are offset. Please provide the closest estimates to calendar year results

An AE, or Account Executive, is a direct sales representative, responsible for booking new business, and paid based on performance against Quota

Aggregate AE Compensation
Aggregate AE compensation includes actual projected cash costs of all AE compensation (in a Segment) associated with delivering bookings in the period indicated. Commission expense should be fully factored in (not amortized, as otherwise directed by ASC 606). Furthermore, do not expense stock-based compensation

Annual Net Dollar Retention
Annual Net Dollar Retention tracks the net effect of upsells/expansions, downsells and churn for all customers who were on the platform over the course of the entire year. For example, if total ARR across all customers on the platform @ 1/1/20 was $20M, and $2M of that ARR was lost through churn/downsells, and $6M was sold to that same customer base through upsells/expansions during 2020, then Annual Net Dollar Retention would be 120% ($20M-$2M+$6M divided by $20M)

ARR, or annual recurring revenue, is contracted, annual run-rate of recurring subscription software revenues, plus, in cases where it is generally predictable (and where AEs are comp’d on it), expected recurring usage revenues (e.g., payments). Professional services revenues should be excluded. In assessing subscriptions, ignore ASC606 revenue recognition rules (which can inflate “recognized revenues” in the early years for on-premise deployments); instead use traditional “subscription accounting” principles. ARR of a business is analogous to a balance sheet item in that it is measured at a point in time – for example, the total ARR as of 12/31/20 is the ARR of all contracted customers at that date. ARR bookings is measured over a period of time – for example, ARR bookings in 2020 is the new ARR bookings delivered by the sales team during 2020

Avg. Number of Ramped AEs
The Avg. Number of Ramped AEs is a weighted average measure of the number of AEs on the platform over the course of the year, factoring in partial years for arriving and departing AEs and partial credit for partially ramped AEs. For example, if in the first half of the year, a company had 10 AEs fully-ramped and four 50%-ramped AEs; while in the second half of the year, it had 14 fully-ramped and two 50%-ramped AEs, then the Avg. Number of Ramped AEs for the year would be 13.5

Business Development Reps, or BDRs, are responsible for generating new leads for the AEs

We group Churn and Downsells together as they both reflect lost ARR dollars. Some analysts define “Churn” to include only customers that completely (100%) depart; while they define “Downsells” to be customers that decrease their ARR over the course of the year (but remain on the platform). In our nomenclature, we don’t bother differentiating, and simply track all decreased, whether 100% or partial, as “Churn”. In our analysis, Churn+Downsells, in its pure economic sense, is measured as Annual Gross Dollar Retention, and tracks the dollar value, on an ARR basis, of all such lost business (whereas Annual Net Dollar Retention tracks the net, including the benefit of Upsells/Expansions)

Cost of Sales
Cost of Sales includes Aggregate AE Compensation (defined above) plus other cash Costs of Sales, similarly factoring in actual commissions earned (no 606 treatment), and backing out stock-based compensation expense for other non-AE team members

Free Cash Flow (FCF) margin
Free Cash Flow or FCF margin is the quantity, cash from operations, minus capital expenditures, divided by starting ARR (rather than “GAAP revenues”)

Gross Margin of Entire Software Business
Gross Profit Margin of the Entire Software Business should exclude the effect of stock-based compensation charges. Be sure to include the all-in margin, including the gross profit of professional services

New Customer Bookings
New Customer Bookings are sales to new customers. We measure the dollar amount of such bookings on an ARR basis

OTE, or On-Target-Earnings, is the total compensation that an AE would earn if they met their bookings target for Quota, without factoring in penalties or SPIFs (captured elsewhere). We are looking for OTE to be reported as the sum of two separate components: Base Salary (which is paid regardless of performance); and Variable Compensation, which, is paid if the Quota target is exactly met.

Percent of Quota Capacity Achieved
Percent of Quota Capacity (QC) Achieved is a performance metric that compares the actual bookings achieved by the AEs in a Segment, against the product of: 1) Avg. Number of Ramped AEs during the period; and 2) Quota. For example, if there were an average of eight fully-ramped AEs, with $1M in Quota per ramped rep for the year, and the team delivered $10M in ARR bookings, then the Percent of Quota Capacity Achieved would be 125%

Quota is the bookings target that an AE must achieve in order to be paid OTE. In order to maintain “apples-to-apples” measurements of Quota across companies, we track Quota strictly on an ARR basis for new ARR bookings only (no credit for renewals). Therefore, if a company provides credit for TCV bookings, renewals or professional services, we provide instructions in the survey to “normalize” their reporting of quota so that it is ARR-based. Note that we are indifferent to whether a company excludes Upsell/Expansion ARR bookings (since presumably targets and compensation will be adjusted appropriately, and we can track performance of “farmers” as a separate group)

Quota-to-OTE Ratio
Quota-to-OTE ratio is: AE Quota divided by AE OTE, and is a core parameter in setting up an AE’s compensation plan. The lower that this ratio is, the more “generous” the compensation is for the AE, all other things being equal

Sales Development Reps, or SDRs, are responsible for qualifying new inbound leads for the AEs

“Segment” refers to a distinct group within a direct sales organization which has a distinct compensation plan, such as quota, on-target-earnings, accelerators, etc. For example, a company might maintain separate Segments for Enterprise and SMB; similarly, it could have separate Segments for North America and EMEA

Sales Engineers, or SEs, assist the AEs in selling the more technical aspects of the product

TCV, or total contract value, includes the value of an entire contract, for all years of commitment. For example, a three-year commitment on a $1M ARR contract (assuming no PS), would have a $3M TCV

Upsells/Expansions are bookings to existing customers, increasing their committed subscription revenues. An “Upsell” is a sale of a new product to an existing customer; an “Expansion” is the sale of more of a solution which the customer has already under contract (e.g., a new seat or greater usage, etc.)