Tue. Feb 27th, 2024

Content Assessment: DSO, MRR, and Revenue Distribution Findings from the Fall eDiscovery Business Confidence Survey

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A short assessment of the qualitative benefit of the recent report of the Fall 2023 eDiscovery Business Confidence Survey results relating to DSO, MRR, and revenue distribution across customer bases.

Editor’s Note: We are delighted to present the results of the twentieth iteration of the business operational metrics subset of the eDiscovery Business Confidence Survey by ComplexDiscovery. Introduced in the winter of 2019, these optional questions about Days Sales Outstanding (DSO), Monthly Recurring Revenue (MRR), and customer revenue distribution have been a component of 20 of the 31 surveys conducted. Over 1,740 professionals from the legal, IT, and business sectors have contributed valuable insights since the introduction of these questions. In the latest survey, we received responses on at least one of these topics from 59 participants. 


Industry Report

The Economic Contours of Three Business Metrics in the Fall of 2023

ComplexDiscovery Staff

The Fall 2023 eDiscovery Business Confidence Survey is an integral resource for assessing the confidence levels of professionals within the eDiscovery ecosystem. This non-scientific, quarterly survey addresses diverse aspects of creating, delivering, and consuming eDiscovery products and services through nine core multiple-choice questions. Moreover, it addresses three key business operational metrics with optional questions.

The first question asked participants to assess the trajectory of their organization’s Days Sales Outstanding (DSO) over the last quarter. DSO measures the average number of days a company takes to collect revenue after a sale, reflecting the efficiency of a company’s collection and credit policies.

The second question focused on the organization’s Monthly Recurring Revenue (MRR) trajectory during the past quarter. MRR represents the predictable revenue that a company can expect every month, excluding one-time sales, and is a vital indicator of a company’s financial health.

The third question asked participants to describe the distribution of their organization’s revenue across their customer base during the last quarter. This question aimed to understand the spread of a company’s revenue among its customers, focusing on efforts to reduce the concentration of revenue among a small group of repeat customers, thereby reducing risk and promoting business stability.

Each of these questions provided four options for response: Increasing, Unchanged, Decreasing, and Do Not Know.

The ensuing analysis and graphical summaries comprehensively overview the collective responses to these business operational metric questions. Providing a unique perspective on the trends of these critical measurements, these insights could prove invaluable to business and legal professionals as they evaluate the current conditions and emerging trends within the data and legal discovery landscape.

Observations in the Fall of 2023

Days Sales Outstanding, Monthly Recurring Revenue, and Revenue Distribution Across Customer Bases

In the Fall of 2023, the eDiscovery Business Confidence Survey offered insightful trends related to pivotal operational metrics, providing a comprehensive understanding of the industry’s financial health and potential trajectories. The survey examined three vital parameters: Days Sales Outstanding (DSO), Monthly Recurring Revenue (MRR), and the Distribution of Revenue Across the Customer Base. These metrics shed light on financial management, consistent revenue generation, and customer revenue diversification within the eDiscovery ecosystem.


Days Sales Outstanding 

Days Sales Outstanding (DSO) is an indispensable financial metric, offering businesses a snapshot of their fiscal health, especially concerning receivables. The 2023 quarterly surveys illuminate the shifting perspectives on DSO within the industry. These insights can pave the way for strategic decision-making for professionals in cybersecurity, information governance, and eDiscovery. This section zeroes in on the data from the Fall, Summer, and Spring 2023 surveys, spotlighting the implications and suggesting actionable strategies for robust financial outcomes.

Observations and Analysis Focusing on Fall 2023:

  1. Increasing DSO: In the Fall, 32.2% of participants indicated an increasing DSO, a slight rise compared to Summer’s 29.2%. However, this was significantly higher than Spring’s 14.9%. The trend suggests that businesses might face more extended collection periods as the year progresses.
  2. Unfluctuating DSO: Fall saw 30.5% of respondents reporting a stable DSO, slightly higher than Summer’s 29.2% but lower than Spring’s 37.3%. This indicates that many businesses maintained a consistent collection cycle throughout the year.
  3. Decreasing DSO: Only 5.1% of participants in the Fall reported a decreasing DSO, down from 13.8% in the Summer and slightly below Spring’s 10.4%. This trend might suggest that fewer businesses could reduce their collection periods as the year went on.
  4. Uncertainty Regarding DSO: Fall and Spring had 32.2% and 37.3% of participants expressing uncertainty about their DSO, while Summer had a slightly lower percentage at 27.7%. This consistent uncertainty might indicate external market factors affecting businesses’ ability to predict their collection cycles.

Implications for Industry Professionals:

  1. The rising trend in increasing DSO from Spring to Fall might suggest challenges in collecting receivables or potential changes in credit policies. This requires attention as a prolonged DSO can impact cash flow.
  2. The relatively consistent percentage of businesses reporting an unfluctuating DSO throughout the year suggests a stable market segment. While this stability is positive, there’s also potential for these businesses to explore strategies for reducing DSO and improving their cash conversion cycle.
  3. The decrease in businesses reporting a declining DSO from Summer to Fall can be a point of concern. It might be indicative of external economic factors, market shifts, or internal operational inefficiencies affecting the collection process.
  4. The consistent level of uncertainty around DSO across the quarters underscores the importance of businesses investing in predictive analytics and market research to reduce ambiguity.

Recommendations for Positive Financial Outcomes:

  1. Review Credit Policies: If DSO is increasing, it might be time to revisit and possibly tighten credit policies or enhance vetting processes for new customers.
  2. Enhanced Collection Strategies: Implement proactive collection strategies, including regular follow-ups and possibly offering incentives for timely payments.
  3. Continuous Monitoring: Regularly track DSO metrics to detect significant shifts early and adjust strategies accordingly.
  4. Engage with Customers: Foster open lines of communication with clients to understand any potential payment challenges and collaboratively find solutions.
  5. Leverage Predictive Analytics: Use data-driven tools to anticipate future trends in DSO and strategize accordingly.

Monthly Recurring Revenue

Monthly Recurring Revenue (MRR) is a cornerstone metric for businesses, particularly for those operating on subscription-based models. It provides a clear snapshot of predictable revenue streams. The 2023 quarterly surveys offer invaluable insights into how industry sentiments concerning MRR have fluctuated throughout the year. For professionals within the domains of cybersecurity, information governance, and eDiscovery, these insights are instrumental in shaping financial strategies.

Observations and Analysis Focusing on Fall 2023:

  1. Increasing MRR: In the Fall, 37.3% of respondents reported an increasing MRR. This is a slight increase from Summer’s 33.8% and closely aligns with Spring’s 38.2%. The figures suggest a relatively consistent growth in MRR across the year.
  2. Unfluctuating MRR: 25.4% of participants in Fall indicated a stable MRR. This is a slight increase from both Summer’s 23.1% and Spring’s 22.1%, suggesting that a consistent segment of businesses maintained steady MRR throughout the year.
  3. Decreasing MRR: Fall saw 8.5% of respondents reporting a decrease in MRR, a marginal decline from Summer’s 9.2% but higher than Spring’s 5.9%. These fluctuations may indicate varying challenges or market conditions across the quarters.
  4. Uncertainty Regarding MRR: The percentage of participants expressing uncertainty about their MRR in Fall was 28.8%, which is a decrease from both Summer and Spring, which both stood at 33.8%. This suggests that businesses might have gained better clarity or predictive capabilities as the year progressed.

Implications for Industry Professionals:

  1. Consistent Growth: The relatively stable figures indicating increasing MRR throughout the year suggest a favorable environment for businesses, with many experiencing consistent growth in their recurring revenue.
  2. Stable MRR Segment: The slight increase in businesses reporting an unfluctuating MRR across the quarters indicates a reliable and stable revenue segment, which can be the foundation for future growth strategies.
  3. Challenges in Revenue Growth: The fluctuations in decreasing MRR percentages might point to specific challenges or market conditions that affected businesses differently across the quarters.
  4. Improved Predictability: The reduction in uncertainty regarding MRR from Spring to Fall could be indicative of businesses improving their forecasting capabilities or adapting to market changes more effectively.

Recommendations for Positive Financial Outcomes:

  1. Diversify Offerings: To capitalize on the growth trend, businesses could consider diversifying their subscription offerings or exploring new market segments.
  2. Enhance Customer Retention: Given the importance of MRR, focus on customer satisfaction and retention strategies to maintain and grow this revenue stream.
  3. Regular Review: Continuously monitor MRR metrics, especially in light of the slight fluctuations observed, to adapt strategies and address challenges promptly.
  4. Data-Driven Insights: Harness analytics tools to gain deeper insights into MRR trends, customer behaviors, and potential growth areas.
  5. Engage and Adapt: Maintain open communication channels with customers to understand their needs and feedback, making necessary adjustments to offerings and pricing models as needed.

Distribution of Revenue Across Customer Base

Revenue distribution across customer bases remains a foundational metric for businesses, particularly cybersecurity, information governance, and eDiscovery. The Fall 2023 survey brings to light critical insights, reflecting the industry’s pulse during this period.

Observations and Analysis Focusing on Fall 2023:

  1. Increasing Distribution of Revenue: In the Fall, 32.2% of participants reported an increase in revenue distribution. Compared to Summer’s 29.2% and Spring’s 37.3%, Fall’s figures suggest a recovery from Summer’s slight dip.
  2. Steady Distribution of Revenue: 28.8% of respondents indicated a consistent revenue distribution in the Fall. This figure aligns closely with the responses from the previous two quarters, signifying a stable segment of businesses.
  3. Declining Distribution of Revenue: The percentage of participants indicating a decrease in revenue distribution stood at 10.2% in the Fall. This is a modest drop from the 12.3% in Summer, indicating some businesses overcame the challenges they faced in the preceding quarter.
  4. Uncertainty in Revenue Distribution: The Fall mirrored the previous quarters, with 28.8% of participants expressing uncertainty regarding their revenue distribution.

Implications for Industry Professionals:

  1. The data from Fall 2023 reveals a slight rebound in the increasing distribution of revenue compared to Summer, suggesting businesses might have adapted to challenges or capitalized on new opportunities.
  2. The consistent figure across quarters for businesses with unfluctuating revenue suggests a stable market segment. However, it also underscores the potential for further innovation and expansion to boost growth.
  3. The decrease in businesses reporting declining revenue distribution from Summer to Fall provides a glimmer of optimism. It indicates that some businesses have successfully navigated their challenges.
  4. Uncertainty in revenue distribution highlights a need for businesses to invest in predictive tools and market analysis to reduce ambiguity.

Recommendations for Positive Financial Outcomes:

  1. Innovate and Adapt: Given the recovery in increasing revenue distribution, it’s crucial to maintain this momentum by continuously innovating and adapting to market shifts.
  2. Stay Abreast of Market Dynamics: Monitor industry news and competitor strategies to anticipate and react to potential changes.
  3. Data-Driven Decisions: Harness data analytics tools to identify emerging trends and refine distribution strategies.
  4. Engage with Customer Base: Regular feedback loops with customers can offer insights into their evolving needs, allowing businesses to adjust their distribution strategies proactively.
  5. Risk Mitigation: Develop contingency plans to navigate unforeseen challenges, ensuring a consistent revenue distribution.

Observations Summary

To date, in 2023, the financial landscape for businesses has undergone subtle but notable shifts, as revealed by surveys focusing on Days Sales Outstanding (DSO), Monthly Recurring Revenue (MRR), and Distribution of Revenue.

A discernible trend has emerged throughout the year regarding Days Sales Outstanding (DSO). Many businesses report more extended collection periods as the months progress, particularly from Spring to Fall. This rise in DSO might indicate various challenges, whether they stem from external economic factors, shifts in the market, or potential internal operational inefficiencies. Another noteworthy observation was the unwavering uncertainty regarding DSO across the quarters, accentuating the industry’s need to bolster its predictive analytics capabilities and deepen its market research efforts.

Turning to Monthly Recurring Revenue (MRR), 2023 has been a year that has generally favored growth. Many businesses report a rise in their MRR from Spring to Fall, suggesting a conducive environment for the steady expansion of recurring revenue. Concurrently, there has been a mild uptick in entities, indicating a consistent MRR throughout the year, underscoring the presence of a reliable and robust revenue segment. Additionally, as the year has unfolded, businesses seem to have refined their forecasting prowess or become more adept at navigating market changes, as evidenced by the diminishing uncertainty surrounding MRR from Spring to Fall.

Lastly, concerning the Distribution of Revenue, the Fall of 2023 marked a period where a marginally higher percentage of businesses indicated an uptick in their revenue distribution compared to the preceding Summer months. Such a trend could be interpreted in several ways: businesses might be branching out, diversifying their customer bases, or successfully penetrating new markets. In tandem with this, the percentage of businesses signaling a steady revenue distribution has remained relatively stable throughout the year, hinting at a sound customer base and persistent revenue streams. Yet, it’s reasonable to acknowledge the consistent uncertainty about revenue distribution that has persisted across the quarters, which could indicate external market forces at play, influencing businesses’ revenue predictions.

The data from 2023 up to this point appeals to businesses to uphold the principles of continuous monitoring, strategic foresight, and the harnessing of data-driven insights. In an ever-shifting financial terrain, the onus is on businesses to remain agile, preemptively tackle challenges, and seize growth opportunities with both hands. With astute strategies and a forward-looking approach, professionals can chart a course toward positive financial outcomes and sustainable growth.


Survey Charts

(Charts Can Be Expanded for Detailed Viewing)


Chart 1: An Aggregate Overview of Days Sales Outstanding (DSO) Trajectory

eDiscovery Business Metric Trajectory – Days Sales Outstanding – Fall 2023 – DSO – Update

Chart 2: An Aggregate Overview of Monthly Recurring Revenue (MRR) Trajectory

eDiscovery Business Metric Trajectory – Distribution of Revenue Across Customer Base – Fall 2023 – Distribution

Chart 3: An Aggregate Overview of Distribution of Revenue Across Customer Base

eDiscovery Business Metric Trajectory – Monthly Recurring Revenue – Fall 2023 – MRR

Complete Presentation: Market Kinetics – Operational Metrics – Fall 2023 (PDF) – Mouseover to Scroll 

0 – Business Confidence – Operational Metrics – 0102123 Update

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Additional Reading
Source: ComplexDiscovery
 

 

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