Purpose: GitLab's operating plan is a guideline to understand how much capital it needs and how the capital will be consumed. The operating plan helps GitLab answer questions like "how fast can we hire and when?"
What: The operating plan is a three statement (Income Statement, Balance Sheet and Statement of Cashflow), non-GAAP bottoms-up plan that spans the current fiscal year. The revenue is driven off the GitLab revenue model and the expense part of the plan is at the headcount and vendor level.
Governance: The operating plan is approved by the board of directors every year.
What: Actuals are results that have been reported or exist in a system that is designated as a single source of truth for the item that is being measured. Each month accounting closes the month and financial results are recorded in our ERP system and are published in our financial statements. These actuals are compared to the operating plan.
Purpose: In a dynamic high-growth business, GitLab's needs may change through the year and we need to be able to predict what is going to happen.
What: Forecast is a dynamic assessment based on current expectations of financial performance. The FP&A team will publish a monthly forecast for revenue driven by key metrics and expenses driven by headcount and vendors. A monthly forecast does not extend the forecast period. For example in March 2020, the forecast will span from February 2020 to January 2021 with February actuals and March 2020 to January 2021 forecast - this will be called the (1+11) forecast. A monthly forecast will not be formally compared to actuals in variance.
Governance: The monthly forecast is approved by VP Finance and reviewed with CFO.
Purpose: In a dynamic high-growth business, GitLab's needs may change through the year and we need a guidepost to hold business leaders accountable. We plan our expenses at a high level (e-group) and we expect this group to make prioritizations and trade-offs while remaining accountable against the plan parameters. By formally reforecasting quarterly, we can quickly evaluate and incorporate new initiatives into our forecasting model. That being said, we do follow an annual plan to set our goals and measurement for our top-level targets of revenue, profitability and expense management.
What: Forecast is a dynamic assessment based on current expectations of financial performance. The (3+9), (6+6) an (9+3) quarterly forecasts include revenue driven by key metrics and expenses driven by headcount and vendors. On the quarterly forecast another quarter will be added to the end of the forecast period so that we have a valid rolling four quarters. For example in May of 2020 we will forecast from Feb 2020 to April 2021 adding FY22-Q1 with FY21-Q1 (Feb 2020-Apr 2020) as actuals. The team may go out farther to the end of the next fiscal year.
Governance: The quarterly rolling forecast is approved by the eGroup and CEO and reviewed with the board of directors. eGroup will be held accountable to the quarterly rolling forecast for expenses. For revenue the company will always be held accountable to Plan.
What: Target is a goal or objective that may be higher or lower than the Plan or Forecast. Targets are typically used in conjunction with setting OKRs, compensation plans or other performance objectives. Governance: A target that relates to IACV is usually agreed upon by the DRI of the target and VP Finance or CFO. Other targets are part of OKRs and reviewed by the CEO.
What: Baseline is a measurement of actual expense or revenue that relates to a certain point in time (i..e month, quarter or year). We use baselines to measure progress of improvement against actual results. The progress can be stated in monthly, quarterly or annualized terms.
The revenue model predicts new business based on the growth persistence model and growth from existing business based on net retention assumptions. Understanding how much revenue is anticipated determines how much capital will be needed for growth in the foreseeable future.
The rolling 4 quarter forecast builds off of the revenue projected in the revenue model. During the rolling 4 quarter, departments build out plans to help meet their strategic goals. Understanding the departmental plans determines how much of the capital will be consumed for foreseeable future.
The budget looks to GitLab's long term profitiablity goals and incorporates plans made during the rolling 4 quarter forecast in addition to revenue forecasts from the revenue model. In order to have a budget, GitLab must have a forecast(s) for it's operating plan. Therefore, the revenue and rolling 4 quarter forecasts are critical to set budgets. Budgets help GitLab understand how it's spends its cash and help predict long term targets, but ultimately budgets are a guideline.
GitLab’s FP&A team will participate in a rigorous monthly close process. The close process has clear deadlines to best support our accounting team, key dates to deliver information to the EVPs / department heads, analyze the performance of our budgets and forecasts against actuals, update our internal forecasts and eventually update our investor guidance to prepare for the quarterly earnings call. Our philosophy is to compare our forecasts to results so that we can constantly improve our forecasting methodologies and approaches to hold ourselves accountable. Additionally, this process drives accountability to the business owners of the budget.
COMING
Each month after the financials have been published, GitLab reviews all aspects of the business including Corporate Metrics, Bookings, Revenue, Gross Margins, Expenses, Balance Sheet and Cash Flow. The goal of this review is to do a comprehensive review so that finance leadership has a pulse on the business and the financials.
The variance analysis will compare department budgets with actual results and examine any material differences between budgeted and actual costs. Additionally, the actuals for expenses will be compared to the quarterly rolling forecast. The expenses are reviewed at the divisional department level, allowing GitLab to measure progress in meeting its Plan (Q1-Q4) or rolling forecast (Q2-Q4). The team also evaluates the accuracy of forecasts, and operating model.
To be Updated
The study of differences between budgetary and expected cost. At GitLab, different measures of materiality thresholds are measured during the variance analysis process, including the Monthly Finance Planning Meeting. During the variance analysis processs the GitLab FP&A team analyzes and isolates any variance in question to the lowest level possible. The team reviews detailed items in order to identify the root cause of the variance. This could include transaction date, cost center, vendor, location, department or additional low level details.
At GitLab, analysts begin the variance analysis process with trended data to understand if there is a recognizable pattern. This helps determine if the variance was caused by incremental change or driven by one particular event and helps identify the root path quickly.
The FP&A team takes the following into consideration while evaluating variances in relation to materiality thresholds:
Generally accepted accounting principles (GAAP) does not provide definitive guidance in distinguishing material information from immaterial information. Therefore, GitLab uses a percentage based approach for defining materiality thresholds and can be found below. The Plan vs Actuals vs Forecast Sisense dashboard provides the data for the threshold analysis via a color coded legend.
The total is inclusive of all Revenue activities including subscription, professional services, swag shop and other revenue streams.
< 5% of plan OR < $0 is considered immaterial> 10% AND > $10,000 of plan is considered material5-10% OR $0 - $9,999 of plan is subject to judgement and reviewThe total is inclusive of all COGS activities including Customer Support, Professional Services, and other allocation expenses.
< 5% of plan OR < $0 is considered immaterial> 10% AND > $10,000 of plan is considered material5-10% OR $0 - $9,999 of plan is subject to judgement and reviewThe totals are exclusive of the sum of operating expenses. Each operating expense line item (i.e. Sales, Marketing, R&D, G&A) should be measured on a line item basis
< 5% of plan OR < $0 is considered immaterial> 10% AND > $10,000 of plan is considered material5-10% OR $0 - $9,999 of plan is subject to judgement and review< 5% of plan OR < $0 is considered immaterial> 10% AND > $10,000 of plan is considered material5-10% OR $0 - $9,999 of plan is subject to judgement and reviewAdditionally, each finance business partner will run a meeting with the VP of Finance and the EVP to review the past month. The information should be presented as timely as possible. Given the accounting close is 10 days, the team is asked to use pre-close numbers for the review to increase the speed of information. During the meeting, the Finance Business Partners will review GitLab results in addition to a detailed overview. Each division can expect to review the following during the monthly meetings:
Following the month-end close, the Finance Business Partners will create a variance deck and distribute department income statements to the related budget owners and the e-group members. Each department is then responsible for comparing these reports, which contain actual costs, to the budget. Departments, with guidance from the Finance Business Partners, should analyze their data and if necessary, discuss items of interest and take appropriate action. Any questions regarding the cost data should be discussed with the Finance Business Partner.
In partnership with Marketing Operations and Accounting, we set out to improve the timing and accuracy of budget vs. actuals tracking for marketing programs opex and to provide data driven insights to these teams during the close process by BD3 at the beginning of a new monthly accounting period.
The utilization of campaign finance tagging for marketing program spend enables month-end reconciliation of expense actuals, prepaids, and accruals at the budget line item level. The components of this analysis are as follows:
Once these components are in place, a comparison showing the difference between budget vs. actuals may indicate the need for an accrual or indicate a budget overage. The finance business partner can then take appropriate action with the accounting team or the business to resolve. The basic structure of this analysis should resemble the following:
| Campaign Finance Tag | A: Expense | B: Prepaid (GL Acct# 1150) | C: Total (A+B) | D: Budget line item | E: Variance (D-C = Potential Accrual/Overage) |
|---|---|---|---|---|---|
| ISOdate_CampaignShortName | $000's | $000's | $000's | $000's | $000's |
Our Plan is intended to ensure that the Company has sufficiently considered what is required to support the Company's financial goals. The Plan ensures that there is accountability across all divisions that can be measured. The Plan is not intended to represent a cap on what we can invest in support of maximizing the growth of the Company. We encourage our team members to actively seek opportunities that will help us grow faster. Those growth initiatives will be evaluated, as follows:
In the event an organization is asking to spend money outside either the Annual Plan or Quarterly Forecast, you should develop a business case showcasing what the spend is for and how Gitlab can benefit from spending it.
This business case should be completed in conjunction with your Finance Business Partner (FBP) to articulate the financial impact of the request. Below are a few examples of the question you should be trying to answer:
Together with your FBP , this analysis should be presented to your leader for approval.
Throughout the year the Executive Business Partner team puts together a calendar of events for board members and other events associated with planning. Those events can be found in the GitLab Board Calendar sheet.
Each month we send to our investors an update no later than the 10th day following the end of the month. For further reference see our blog post.
@mention e-group members with asks for topics related to the investor update agenda.1: Sales Metrics 2019 Monthly Metrics
2: Sisense
3: Metrics Report (SFDC)
4: All Pipeline Report (SFDC)
5: Late Stage Report (SFDC)
6: Orders Processed Report (SFDC)
7: Revenue Spreadsheet sent from Controller
8: Cash Flow Forecast (Accounting Will Send Over – typically within the 4th of the Month)
9: Pingdom
10: LTV for Metrics
11: BambooHR
12: Zendesk
13: Snowflake
14: Sales Pipeline Analysis
GitLab uses several different methods to budget specific revenue and expenses. During the Rolling 4 Quarter Forecast planning process GitLab may use one of the following methods to allocate revenue or expenses.
Recording activities based on the percentages across a certain time period. This can either be on a percentage spread or an amount spread
Recording activities based on a one time basis across a certain time period. These activities are geared toward, but not limited to, marketing expenses.
Recording activities based on headcount growth across a certain time period.
The primary mechanism to ensure efficient spend of company assets is the Procure to Pay process, and specifically completion of the vendor and contract approval workflow prior to authorization. The procurement team or your finance business partner can assist with questions related to this process.
The second mechanism is the budget vs actual review to determine reasons for variances vs plan.
The Finance Business Partner for Marketing will review transactions within the general ledger accounts for marketing program expense (6100’s) on a weekly basis to ensure that campaign tags are present. An exception report will be delivered to the Marketing Operations team either validating that all tags are present, or pointing out those transactions where the tag is missing. Marketing Operations will then work with the Marketing team to add back the missing tags.
A live dashboard to assist in identifying these transactions can be found in Sisense, but it is not linked here due to the sensitive nature of this data. The weekly desktop procedures for this process are as follows:
GitLab maintains a financial model and communicates high level financials five years out.
GitLab's integrated financial model is synonymous to its operating plan, but the integrated financial model is based soley on business drivers. The integrated financial model dynamcially answers questions like “What are our limits in comparison to the total addressable market?” and provides "What-if" scenarios. The integrated financial model also helps set the long term profitablity goals. GitLab has established business drivers in each function of the business and continues to refine them to ensure its tracking accordingly. The integrated financial model can also be considered a top-down plan.
Scale Venture Partners developed a Growth Persistence Model based on research on private and public software companies. The Persistence Model shows that ARR growth rates typically decline year over year, with each year’s growth being, on average 85% to that of the preceding year. We use this methodology to set our growth targets.
At GitLab, planning starts with long term goals. GitLab uses business drivers to forecast out long term goals by division. By using division specific business drivers that tie into the long term goals, GitLab is able to quickly and dynamically shift priorities based on external or internal changes.
Business drivers are the key inputs and activities that drive the operational and financial results of a business. Business Drivers cited by CFI
Our long term profitability target for EBITA (Earnings Before Interest Taxes and Amortization) is 20% of revenue.
Other financial planning targets are described in the divisional area (e.g. sales, marketing, development, etc.) in this handbook. We plan to achieve our long term profitability target as our revenue growth rate approaches 30%.
The long term target for operating expenses as a percentage of revenue for G&A is 10%.
The long term target for R&D spend is 20%. We expect it to take longer to reach the long term target compared to typical companies as we plan as we expect to continue to invest in R&D to drive higher than average growth.
We have a large TAM at $49B and believe that high sustained growth rates will allow us to capture a larger percentage of market share compared to our competitors.
| Division | Long Term Target |
|---|---|
| Cost of Sales | 15% of Revenue |
| R&D | 20% of Revenue |
| Marketing | 12.5% of Revenue |
| Sales | 22.5% of Revenue |
| G&A | 10% of Revenue |
| Total | 80% of Revenue |
| Division | FY20 Expense Target |
|---|---|
| Customer Support | 10% of ARR |
| Customer Solutions | 80% of PS Recognized Revenue |
| Engineering | 70% of IACV |
| Sales | 75% of IACV |
| Marketing | 45% of IACV |
| G&A | 10% of Total Operating Expense |
For new department approvals and more detail on the process, please reach out on the #fpanda channel in Slack for desktop procedures.
Measures the number of days from Rolling Forecast Kickoff to Quarterly Board Meeting. The time period is quarterly. The target is 30 days.
Measures the team morale by using the tool Lead Honeslty. The time period is monthly, but will use a weekly average based on weekly 1:1s. The target is 9 on a scale from 1-10.
Measures the number of days from month end close to release variance analysis to business leaders. The target is five business days.
Measures the percentage deviation between the actual costs and the planned costs over the same time period. The time period may be monthly, quarterly, or yearly. The target deviation percentage is +/- 1.5%.
Percentage Deviation= (actual expenses-planned expenses)/planned expenses * 100
Position Description - Engineering Specific
Position Description - Sales Specific
Measures the days from Accounting Close to distrubtion of Budgets vs Actuals to Finance Business Partners. The time period is monthly. The target is 1 day after Accounting close.
Measures the days from 1st of month to release of the investor update. The time period is monthly. The target is 1 day after Accounting close. The target is 5 days from 1st of the month.
Measurements can be found under the Data Teams Performance Indicators
Successfully creating new departments require that various company systems be updated to capture newly defined department structures. Once the need for a new department arises, follow these steps:
Below is a table showing the structure of GitLab departments as they exist in BambooHR and netsuite. Please check out the Team Page to see our org chart.
At GitLab, the lowest level of tracking reporting structure starts with departments. For reporting and accounting purposes, departments are assigned both a cost center and a division. In certain cases, a department may span multiple cost centers based on GitLab's allocation methodology.
The cost center, divison, and department reporting structure can be found in the Data Team repo located below. In efforts to keep a single source of truth for organizational and reporting purposes, the Data Team maintains any changes implemented by the FP&A team as a result of an organizational change.
A grouping of departments within GitLab to which costs may be charged for accounting purposes.
A grouping of departments in which specific activities are carried out within GitLab. Aligning specific departments to divisions ensure the proper operations and efficiency for supporting and creating value for GitLab's customers.
An area of special expertise or responsibility within a GitLab division.
GitLab allocates cost items based on consumption of resources or headcount. Below are the workflow and diagrams that illustrate how various cost items are allocated:
The grid highlighted as Pre-Allocation P&Ls in the diagram below highlights what GitLab P&L structure would look like if there were no allocation methodology. The grid represents Cost Centers and Departments that fall within those Cost Centers. In order to support different dimensional P&Ls and ensure expenses are flowing to the proper Cost Center, GitLab applies an allocation methodology. Therefore, the Pre-Allocation P&Ls is meant to provide clarity and be a starting point to the allocation methodology process.
The grid highlighted as Allocation Methodology in the diagram below highlights the specifc processes that occur in order to achieve proper expense allocations to their respective Cost Centers.
The allocation methodology is applied to the G&A Company Allocation department. Items that are recorded to the G&A Company Allocation department are software expenses and one off expenses. The software expenses are for software used by the entire company (examples include gmail and slack). At times one off expenses are also recorded to the G&A Company Allocation department (examples include Contribute, payroll service fees, etc).
While credit card processing fees are not allocated company wide, it is important to call out the distinction of applying credit card processing fees to Sales. GitLab does not consider credit card processing a cost to it's product or service. GitLab believes that its credit card processing fees are more appropriately classified as marketing and selling expense because these fees are related to the cash collection process for completing customer orders, which supports sales and marketing classification.
Note: One thing to note during the Yellow Process is the Infrastructure expenses are removed. Infrastructure is allocated during the next phase of the allocation cycle. Therefore no shared expenses will hit the Infrastructure P&L.
The allocation cycle for GitLab's SaaS offering GitLab.com starts. The Finance Business Parter for R&D maintains an allocation model to provide Accounting with an allocation breakout of expenses as well as a P&L based on allocation. The model can be found by searching My Drive > GitLab.com Model. The allocation for GitLab.com is broken out into two different methods.
These allocation breakouts will be documented in the GitLab.com model and will flow into the Post Allocation P&Ls. GitLab allocates these expenses to 3 Cost Centers
The Blue Process, which encapsulates the Yellow and Red process, is meant to bring the full allocation cycle together before the Post Allocation P&Ls are rendered.
The grid highlighted as Pre-Allocation P&Ls in the diagram below highlights the final process during the allocation cycle. As a result, new P&Ls are generated to show the breakout of the Infrastructure team across Cost Centers as well as GitLab.com.
If you create and/or update to a model that materially impacts it, please make sure to make a quick note of what you did in the ChangeLog. This is important because it keeps us on all the same page.
Note: At this time, GitLab use's the term Division to describe the makeup of its internal structure. In the future, the plan is to use the term Function to describe it's internal structure.
Issues the FP&A team works on have the ~"FP&A" label. This applies to both the Finance and Analytics Issue Trackers. This will ensure that expectations are set accordingly and the work gets delievered in a timely and professional way.
The Analytics part of the FP&A team focuses on delivering project based works and at times will assist with ad-hoc analysis.
Since we are a remote company, we utilize a Slack plugin called Geekbot to coordinate various status updates. There is currently 1 status update configured in Geekbot:
The Weekly Status Update is configured to run at noon on Fridays, and contains three questions:
What progress was made on your deliverables this week? (MRs and Closed Issues are good for this)
The goal with this question is to show off the work you did.
What do you plan to work on next week? (think about what you'll be able to merge or close by the end of the week)
Think about what the next most important thing is to work on, and think about what part of that you can accomplish in one week. If your priorities aren't clear, talk to your manager.
Who will you need help from to accomplish your plan for next week? (tag specific individuals so they know ahead of time)
This helps to ensure that the others on the team know you'll need their help and will surface any issues earlier.
The FP&A Team holds a quarterly planning retrospective to discuss what went well and what didn't go well. The team will take action items away from the Retrospective to improve the planning process and overall efficiency at GitLab.
The FP&A Team uses GitLab's Engineering methodology to hold the Retrospectives, which are detailed on the Team Retrospectives page.
Note: During the last quarter of the year, GitLab runs a 5 quarter forecast that aligns with it's annual planning efforts.
