SaaS Metrics Based on Benchmarkit’s 2024 Report

All right. We are live. I’m excited to be here with Ray Reich to talk SAS metrics. Ray, you’ve been doing this benchmarking survey for how many years now?

This is the third year of this survey.

Nice.

And so I’m excited to learn if you could share a little bit about your background and sort of how you got into SAS metrics and why you started running this survey.

OK. Thank you. And thank you for the opportunity to present our 2024 B2B SAS Performance Metrics Benchmark Report findings. So I’ve got about 30 years of operating experience in recurring revenue software companies. I won’t bore you with how that’s possible, since SAS has only been around for about 23, 24 years. But my predecessor, my first company out of school was GE. We were the world’s largest provider of hosted business applications on mainframes accessible via our global private network, sold as a subscription plus usage basis.

I ran about a $ 500 million P& L there before I came to Silicon Valley in 1996. Whenever I would go into a venture capital funded company, I was typically brought in at the $ 5 to $ 10 million range to bring in the process and organizational disciplines to get to $ 50 million and above. I would always try to benchmark how a company was currently performing against the industry benchmarks, going back to using things like the Pacific Crest and then KeyBank Capital Markets Benchmarking Report.

And I always found it very difficult to find like company benchmarks that were the same size, the same ACV, selling to the same target market, because benchmarks are different for a $ 5 million company with a $ 50k product selling to the enterprise versus a $ 25 million company with a $ 100k product selling to mid market. So that’s why I did it. And I started about three and a half years ago partnering with companies like Gainsight, Sales Loft, Salesforce, exactly, Lean Data.

And we’ve conducted over 30 different proprietary original benchmarking research programs across 22 different categories, Kate.

Nice. And how are you different, if at all, from the KeyBank, PacCrest surveys of the world?

Well, first of all, I would look at the end. We’ve actually collected metrics from 18, 000 B2B sized companies over the last three years. This particular research, this year, we had 936 companies where we could use their benchmarks. We did have about 1, 800 companies participate. But we do identify outliers and suspect submissions and we eliminate those. The other thing is you can go to benchmark. ai backslash 2024benchmarks.

And unlike any other benchmarking kind of report, you can actually go in here and you can interactively choose the ARR you want to benchmark against, or ACV, or go to market motion. I’m not going to show it to you all now. But now, instead of looking at a 64 page report, you can go to a specific metric and look at that company profile attribute that’s similar to your own and see what the attribute, I’m sorry, the benchmark is for your particular company profile.

Cool. Let’s get into the data.

OK. So one of the things we did about three and a half years ago when I started the company was I wanted to have a framework, a framework of how we collected, analyzed, and then published the benchmarks. So we have five pillars of enterprise value creation that we use, capital efficiency, operational efficiency, customer acquisition efficacy, customer retention efficacy, and customer expansion efficacy. So that’s how we conduct our research. And we’ll first go into some of the operational efficiency benchmarks we collect.

The first thing that everyone’s interested in, by the way, this is 936 private SaaS companies, not public SaaS or cloud companies, is growth rate. Now, this is for calendar year 2023. So this data now is about six months old. We have not completed our first half 2024 benchmarks yet. But as you see in the top right hand chart, you can see that that median growth rate actually has decreased. Now, that’s not unsurprising based upon what we’ve went through. But what we wanted to do was break that down by company size.

And one of the interesting things you can see is at the far right hand, the larger the organization, the lower the growth rate, which emulates, by the way, public cloud companies in 2023, which had a median growth rate of about 12%. And once again, no surprise, that bullet point in the middle is median. The top bar is 75th percentile, and the bottom bar is 25th percentile. You can see as companies grow, the median growth rate also reduces. So that’s the first thing we did was growth rate.

Any questions on just the actual growth rate in 2023 for private SaaS companies?

We did have a question on valuations, which are related to growth rates. Do you want to opine on how valuations are trending with growth rates, or are they still being pegged to revenue growth?

Well, we do not collect private funding valuations, so I cannot opine on that. I think the carded data that you see from Peter Walker would be the best place to look at that overall, but I can opine on public companies, because I do a lot of research and analysis of that. So growth rate has about a 2. 3 times higher impact on enterprise value to next 12 months revenue than profitability.

So everyone’s been talking about balanced growth, et cetera, and it’s why Byron Dieter and Sam Bondi at Bessemer came up with the rule of X, because it actually uses a linear regression model to look at in public companies, but it has more impact on those multiples, and right now it’s about 2. 3 to 2. 4. Also, Meritech Capital has great research on showing the sweet spot to optimize enterprise value to the next 12 months revenue, and it’s those companies that are growing 27% and above and have a free cash flow margin of 10 to 20%.

If you have too high a free cash flow margin at the expense of growth, that actually decreases the enterprise value to revenue multiples. So hopefully that answered your question, Kate.

Growth matters. Yep, sounds good.

Okay, so here, I always thought it’s very interesting because this was done right at the beginning of calendar year 2024. What was the actual growth rate in last year and what’s the planned growth rate for 2024? And at median, you notice that the planned growth rate was 35% against an actual growth rate last year of 27%. So that was kind of an aha moment about, hey, people at the beginning of 2024 were a little more optimistic about how this year was going to perform versus last year. And we looked at that on a company cohort basis.

This is looking at that left- hand dark side is actual growth rate by company size last year and then the planned growth rate. What was very interesting was the smallest companies actually were the most conservative. And then as you went to the larger companies, they actually were more confident in a re- acceleration of growth in 2024 versus 2023, where that greater than 100 million of private SaaS companies, where the median was 12% last year, they were actually planning 29% growth, which there was only an N of 18 in that greater than 100 million.

So that may have a little bit of selection bias built in, but I just found it very interesting that larger companies were more optimistic than smaller companies setting into 2024.

It is interesting. It’s interesting that the 20 to 50 million cohort did hit their goal. I mean, I would have expected that everybody had ambitious goals relative to.

I don’t have enough of the variables to tell you why that was beyond my own hypothesis. I sometimes call that 20 to 50 million the valley of death. And the reason I call that is because as most people here on the phone know, to get to 50 million, you probably had to expand your target addressable market aperture a little bit. Maybe you went from just mid- market and you’re trying to go to enterprise or maybe go from the US to the Western European marketplace. That has an incremental customer acquisition cost ramifications.

So they may have been more conservative about what their growth was going to be in 2024 because they were so focused on EBITDA and profitability they didn’t want to increase their sales and marketing spend dramatically.

That sounds like a good hypothesis.

Cool. In fact, we’ll talk about sales and marketing spend in a few minutes. So we talked about kind of one operating efficiency metric and now let’s go to customer acquisition benchmarks. Now.

I know that a lot of SaaS companies still use the SaaS magic number. I think the SaaS magic number is a pretty good directional metric if you want to look at current quarter versus last quarter revenue divided by sales and marketing. But what it doesn’t do is it doesn’t exclude the impact of churn in your go- to- market efficiency. So blended CAC ratio actually takes total sales and marketing investment and divides it by your total new ARR, which is new logo ARR plus expansion ARR from existing customers.

And what’s really interesting here is the last couple of years, when I say last couple of years, 21, 22, you saw a pretty level benchmark of $ 1. 32 of fully loaded sales and marketing expenses to generate $ 1 of new ARR. But in fiscal year 23, I should say calendar year, because some fiscal years went until January. It was interesting to see that went up from $ 1. 32 to $ 1. 61. So that’s almost a 20% increase. I’m like, whoa, whoa, wait a minute. It blew my mind because we’re talking about efficient, durable growth.

We saw sales and marketing expenses being reduced in private SaaS companies by a median of about 6% to 8%. So how is this possible? And what you’re going to see later in today’s presentation is companies over allocated sales and marketing resources to expansion ARR. And the cost to acquire $ 1 of expansion ARR went up from $ 0. 69 to $ 1. And that was the primary contributor to overall CAC ratio going up in 2023.

Interesting.

People might say, oh, a lot of times people question my data and the population, right? And that’s a very fair thing to do in survey- based research. But if you look at public cloud and SaaS companies and look at their totally loaded sales and marketing expenses and divide that by net new ARR, it is up from $ 1. 50 in fiscal year 21 to $ 2. 30 in calendar year 23. So even public companies are seeing similar decrease in go- to- market efficiency as measured by sales and marketing expenses versus ARR growth.

Did you separate out the cost to acquire $ 1 of new logo versus the cost to acquire $ 1 of upsell?

I just went to that page, if you’re seeing page seven now.

Yep, yep, yep, yep.

So now, once again, generic total population benchmarks sometimes are useless and misleading because there’s higher correlations between one company profile attribute and how one metric performs. So for new customer CAC ratio, it’s not company size that’s the highest corollary. It’s the ACV. So this chart on the right shows new customer CAC ratio by average annual contract value.

Now, what you might be surprised here is that as the solution, well, maybe not surprised, as the solution size got bigger, the ACV got bigger, you’ll see that for the most part, the CAC ratio actually increased, right, from $ 1. 29 to $ 1. 78 to $ 1. 80, the $ 1. 76 there at 25K to 50K within the error of margin between the two other bands. And then what you saw was 50K to 100K ACV products had a dramatic higher new customer CAC ratio.

And then you saw as companies had 100K and above, it got a little bit more efficient, but still most higher than every other cohort. Now, just so you know, Kate, if I looked at this on a total population year over year, new customer CAC ratio only went up a little bit on a blended basis. That’s why I thought it was, I’m sorry, on a total basis. That’s why I thought it was good to look at it by ACV. Yeah, that’s interesting.

So and this is the cost of acquiring largest customers, 50K plus a year customers got significantly higher from 22 to 23?

Yeah, it went up, it was about $ 2. 03, I think, in 2022 for the larger ACVs, so it went up about 10 to 12%.

Interesting. Okay.

So, and if you think about that, everything you hear anecdotally, or, you know, the people in this call have- Buyers are being more deliberate, sales cycles are longer. Sales cycles have elongated, ARR is down. So if all that happens, you’re probably going to see a less efficient customer acquisition cost ratio.

Makes sense.

Okay, CAC payback, period. CAC payback period.

CAC payback period.

I’m not a big fan of CAC payback period. I’d much rather use CAC ratio because it’s more granular. Because CAC payback period, as you know, it does take sales and marketing expenses. You should be looking at those sales and marketing expenses allocated to acquiring new customers. And you should be dividing that by the contracted ARR from new logo customers times the gross margin. Because CAC payback period should be gross margin adjusted. Now I know a lot, some VCs are gonna say, no, I do it differently. Maybe they don’t gross margin adjust it.

Or they do what public companies do. And that is they calculate CAC payback period not on contracted ARR from new customers, but on net new ARR growth. That’s why if you look at Jameen Ball and Clouded Judgment, you’re gonna see median CAC payback periods of like 35 months for the last two quarters. But that’s really, it’s more of, that’s more of a GTM efficiency. It’s total cost for total net new ARR, which factors in churn and downsell.

This CAC payback period only looks at new contracted ARR. And once again, as you could expect, as the ACV goes up, your CAC payback period goes up.

So we have a question. This one’s a bit of a doozy. I wanna take the first half of it, which is I’m interested in CAC by channel and whether certain channels, e. g. digital marketing, outbound channels, VARs, et cetera, or strategies within those channels are evolving. Do you have any data on CAC based on the marketing channels or go- to- market channels that you’re using? Or anecdotal data?

Yeah, a couple things. So number one, all of our clients and the companies we work with, we do look at it on a segment basis. And segment means you really need to understand your CAC efficiency for the enterprise versus mid- market or for U. S. versus Europe versus Asia Pacific. So yes on that. Now on the channel or program efficiency, which is what I think the question was, you got a lot of decisions you need to make, including are you using variable expenses only?

Like, are you just using, well, I’m doing a lot of email marketing, so I’m just gonna take my demand generation budget, right, and those resources, and then I’m gonna divide that by the ARR that was brought in through that channel. Or paid search or paid social. It’s very hard to be very precise because attribution models are very subjective in my opinion. So the answer is no. The answer is no, I don’t have it. Can’t benchmark it because everybody would calculate it differently.

Fair.

Was there another question, Kate?

We have some questions on LTV, but I think we’re gonna get into that later. Yeah, as we get into expansion.

Yeah, we’ll keep going. So this is everybody’s favorite metric, net revenue retention, NRR. Of course, two years ago, everybody was talking about companies like Snowflake and Daily Dog and Twilio with 140, 150% net revenue retentions. So as you can see, over the last three years for private SaaS companies, it’s continuously decreased. It was 101% at median for calendar year 2023.

To the, on the bottom, you can see that NRR by ACV. I cannot, and for the life of me, because the 10K to 25K, which had about 80 to 90 companies in that range, the fact that the median was 106%, it seems like an outlier. I don’t get it. I would expect it to be more in the 100 to 102% range, but everything else kind of aligns with the higher the ACV, the higher the net revenue retention. There are a lot of other factors that go into your NRR, include your pricing model. When do you stop counting as new? And when do you start counting it as expansion?

Do you have a multi- product portfolio? Multi- product portfolios are gonna have a higher NRR. So, but 101 across the entire population. If you look at public company comps, NRR, two years ago, median was 120. In 2023, it was 110. Q124, median NRR for public- sized companies was 109. So we see a similar trend line. We just see different levels of that between private and public.

So we

Cool. Okay. Um, this, um, I wanted to make sure I talked about it was that expansion. Now only 18% of our population actually calculates expansion customer CAC ratio. And we reach out and we do some in- person assessments and audits to try to validate some of the numbers.

And we, what we hear is it’s just too hard to determine what, how much sales and marketing and customer success expense is being allocated to the pursuit of upsells and cross- sells expansion ARR. So we, um, we don’t believe that we believe you can do something very simplistic and you could just do a quick time- based survey of all those resources that are touching existing customers and have some responsibility for the upsell cross- sell, whether STRs are doing some level of, um, qualified lead generation for upsells or CSMs are, or you have demand generation spending 30% of their time on customer marketing or growth marketing, et cetera.

But very important to be able to take the expenses that are being allocated to the pursuit of upsells and cross- sells, and then divide that by your expansion ARR. That’s how you get expansion, um, CAC ratio. So I mentioned earlier that dollar at median, that was shocking to me because that increased from 69 cents, um, in both 2022 and 2023.

And as we talk to companies about why their expansion CAC ratio is up, they said they had reallocated some marketing resource and marketing program spend and even account executives time allocation to existing, um, customer upsell cross- sells versus all new customer logo pursuits.

Interesting. So it’s, it’s a function of, Hey, we’re investing in this more.

Um, and so before we, maybe we’re just getting the low hanging affordable fruit and now we’re investing in this more and it’s starting to cost more as a result, as we get kind of into the more expensive upsell opportunities. That is true. And by the way, one of the things we identified three years ago when I first started doing this was so few companies were measuring the cost, the actual cost of upsells and cross- sells. And the assumption was it’s a lot cheaper.

We already have the relationship and that’s a nice kind of anecdotal response, but you got to actually go measure it because if your investor comes to your CFO and says, how do we, how much are we going to have to invest to get 5 million more out of our existing customers? How in the hell do you know? Because if you’re not measuring historically, what it takes to get 4 million, how do you know how much it’s going to take to get 5 million more? Right? Yep. So, so that’s why I think it’s such an important metric.

And then the other thing we are tracking is of your total new ARR and I divide, I define total new ARR as ARR from new logos and ARR from expansion of existing customers. You’ll see that in FY23, that went up to 35% at median. So it continues to increase. But then if you look at what percentage of total new ARR is coming from existing customer expansion, once again, you see as companies grow, you start seeing that increase. And even in that 20 million to $ 50 million range, 49% of total new ARR was coming from customer expansion.

50 million to a hundred, it was 46%. So it’s something to kind of understand as your customer, as your company grows, where are your best sources of revenue and what’s the The other thing that’s really interesting to do is if you can look at that customer cohort with an ARR of, let’s say a hundred to 110, 110, 120, 122 and above, that is truly instructive as to understand your best ICPs.

Once again, the majority of SaaS companies I’m looking at are not using gross revenue retention and net revenue retention as two of the variables to help identify your most profitable and highest customer lifetime value ICP. They look at new customers this year and say, oh, that ICP is really attractive, but they really don’t know how it performs over time.

That makes sense.

By the way, I did not put in this presentation today, I did not put in the customer lifetime value to CAC ratio.

Interesting.

But just so everyone knows, you know, the common wisdom has always said 3X, right? Your customer lifetime value should be 3X. That hasn’t been true for over three years. Right now, we’re seeing the median for customer lifetime value to CAC being around four.

OK, so is, I mean, is LTV to CAC still a modern metric? I feel like it’s been replaced a little bit by CAC ratio and net revenue retention.

Now, a lot of investors are still asking for it.

Yep.

It’s still a nice proxy for how profitable a company can be, a customer can be.

Yep.

And quite frankly, customer lifetime is like, how do you calculate customer lifetime?

Because it needs to factor in your churn rate and also needs to factor in gross margin when you look at customer lifetime value.

Some companies, I know some VCs are saying, I’m going to cap it at five, right? Because they just don’t believe a, because if you have a- We had this.

I mean, if you have a 95% retention rate, that’s an implied 20 year lifetime on a straight, yeah.

Exactly.

Much longer than the hold period.

And some people are making the mistake of using NRR, right? So if you have 110% NRR, your customer lifetime value is infinity, right? Infinity.

Oh.

Yeah.

I knew you had a question on CLTV to cap, and that’s why I’m- I did.

I’m going to pull that guy up. So this is the second part of this question. I’m curious on CLTV as it relates to the number of products versus ARR value. Is there, is the number of products purchased or ARR a stronger indicator of retention?

I can’t answer that because we don’t collect the number of products in our research. So I can’t draw any empirical kind of evidence to say what the correlation is. So I don’t know.

Okay. One that we can think about for future.

Yeah.

So we do know that the customer lifetime value to CAC ratio has a corollary effect to ACV. Yeah. Because you have higher retention rates.

Higher ACV, higher LTV, or higher retention.

Yeah.

Yeah.

Yeah.

I mean, that would make sense. It’s a bigger investment. It’s a more deliberate choice, and you’re less likely to change once you’ve made that choice.

Okay. I’m going to move on here if there’s no more questions on that one. Customer retention. Now, this one, you know, gross revenue retention, right? It really hasn’t moved that much. I also have seen companies really maybe overcompensate and motivate CSMs for gross revenue retention, but it’s paid off because we know that there’s been more consolidation and switching going on trying to go to maybe away from point solutions and more towards a platform approach. But the data says that GRR was flat at 89%.

Now, what we did see was the 25th percentile went from 81% to 79%. So that was down a little bit.

And then I can show that once again on a ACV basis. And as you could expect, typically the higher the ACV, a little bit higher the GRR. But on the right, I mean, I’m sorry, on the bottom, one of the things we collect is what’s your pricing model?

Is it subscription?

Is it usage basis? Is it hybrid? Now, usage- based pricing had lower GRR, both at median and at 25th percentile.

But hybrid, hybrid was interesting. Hybrid represented the highest gross revenue retention rate at 90% and at the top quartile, which starts at 95%. So something told me that the hybrid pricing model, for some reason, and I don’t know, I don’t even have a good hypothesis, quite frankly, at this point in time, had a higher GRR. Now, I will tell you, we partnered with a company called Maxio, and they’ve got about 2, 100 companies that are using their SaaS metrics platform.

And what we saw in the second half of 22 and the first almost all of 23 was usage- based pricing. Only pricing companies’ growth rates went down much faster than subscription companies.

Why?

People could throttle back usage, but they couldn’t cancel until their subscription agreement was coming up for renewal.

Right? And it was six months out or nine months out.

Yeah, yeah, yeah.

And maybe they don’t want to cancel entirely, but they’re going to figure out how to throttle things back.

And with a hybrid model, if you’ve got some level of subscription going on, you’re going to continue to pay that.

Yeah.

Unless, say, that subscription is commitment- based of usage, right? Mm- hmm. Then I could see why that GRR was a little bit better than the other two.

Very interesting.

Next, I’ll go to a couple of the capital efficiency benchmarks. You could put sales and marketing to revenue expense and as an operating efficiency. I looked at it as human capital, so we put it in capital efficiency. Median didn’t change in 23 versus 22. We actually saw second half of 22 being the most dramatic decrease in sales and marketing investment. What you saw was for the top spenders who were spending 56% of actual revenue for sales and marketing in 2022, that went down to 47%. So that went down dramatically.

You also saw- I don’t want to jump the gun, but do you get into quota to OTE in this presentation? And if not, can you share any trends there?

Yeah. The best benchmarking I’ve seen for that is by the Bridge Group. You can even go to one of my podcasts, it’s called Metrics to Measure Up, and you can listen to that podcast episode with Sally Duby. But two things went on. We actually saw in 2023 versus 2021, because they do their research every about 18 to 24 the OTEs went up by 16% for AEs, and quotas only went up 8%. And if you look at the effective commission rate, which in 2021 was hovering around 10 to 10. 3%, it went up to 11. 2%.

So here we are in the era of efficient revenue growth, OTEs went up faster than quotas. And variable commission rates went up. Made no sense to me. And while, by the way, we also saw quota productivity measured by percent of reps who were hitting quota went down from 61% in 2021 to about 44% in 2023. So we’ve got some real issues with how we’re compensating our salespeople and how that’s impacting your CAC rates, which we saw. CAC has went up. Go- to- market efficiencies actually went down the last two years.

So sales comp is part of this driving increased sales and marketing expenses as a percentage of revenue. It is.

It is. Now, some people may be asking this question, because per ASC 606, you’re supposed to now capitalize sales commission and amortize those over the useful life. For SAS efficiency metrics like CAC payback period, CAC ratio, and this is the SAS Metrics Standards Board, which I co- founded, which is defining standards for these metrics. We recommend you don’t, that you include your commissions fully burdened in the fiscal year that you’re taking in the ARR, that you don’t use the amortized version for the efficiency metrics.

Because it makes your CAC efficiency look too good when you do that.

So tax accounting, totally separate from benchmarking reporting.

Any questions on sales and marketing expenses? And once again, now a lot of people will look at the bottom chart and they’re like, okay, why does it go from 18% under a million up to 36%? Pretty easy to explain that. Under a million, mostly founder led sales. You don’t have a VP of sales and a VP of marketing. When you get to that one to five, you often hire one, if not two of those, right? So it goes up dramatically. Then you start seeing some decrease in that five to 10 million because you’re now working against those larger salaries and OTEs.

But as companies grow and that 20 million and above, you actually see an elevated sales and marketing as a percent of gap revenue. And it continues to go up as you continue to scale.

So I guess the obvious question with when you think about sales and marketing as a percent of revenue, it depends a lot upon what your growth plan is. If you’re spending 20% and you’re growing 10%, that’s probably not… It depends upon the company. If you’re spending 20% and you’re growing 50%, that’s probably a pretty strong investment. If you’re going 5%, a much less good investment. How do you think about what’s your growth strategy and how that should impact how much you’re spending on sales and marketing?

I’m not showing it here, but we actually did the correlation between growth rate and sales and marketing spend as a percent of revenue. And for the most part, right, when you normalize it, the companies that spent 40% and greater across the entire population, grew about eight points faster.

And is that correlation or causation? Who knows?

Yeah, we don’t know. Honestly, if you’re growing fast and you’ve got good unit economics, you’re probably more comfortable putting a little bit more fuel on that fire, right? So now the other thing we’ve seen though, and I do about 20 performance metrics and assessments every year. So I go in and get into the actual income statement and the operational data.

What we have found is those companies that reduce sales and marketing dramatically, and I’m talking by more than about 10 to 20%, saw a much higher decrease in growth rates than those who only decreased zero to 10%.

Interesting. So cutting big can be kind of dangerous.

It can be. It can be. Now, if you’ve got a cash run rate reality, I understand it, but the data tells me unless you’ve got a cash issue and or the investors aren’t going to re- up at all, that’s probably a mistake.

And we had a question from Terry, just for clarification, we were talking about commissions. All of your slides are based on the fully burdened version versus the amortized version.

That is correct. Fully burdened, fully burdened.

Awesome.

ARR per employee right now, this is one of the new hot trending metrics for private SaaS companies in the last 18 to maybe I should say six, eight quarters. People would kind of look at it, but it wasn’t that important. But now because of a lot of the expense controls and reduction and trying to become more efficient, and I’m not showing this year over year, but this has been a pretty dramatic increase over the last three years where even in the five to 20 million, that’s a pretty broad range, but we did not ask just five to 10 and 10 to 20.

We increased that from like 154 to 188 at median in the last two years. So that’s a dramatic increase.

188.

I mean, that’s high.

It’s high. It is high. And it’s much higher than we thought. But once again, we don’t have, because here we are doing survey based research. We don’t know what a $ 6 million company was versus a $ 19 million company. I’m sure they’re very different, Kate. But what we see is as companies got into that 50 million, $ 200 million range, that 281 at median was coming close to the 300 that used to be a nice goal for public companies, even though even public cloud companies now are sniffing at 340 to 350 of ARR per employee.

So what would you say, I guess, what’s your, is this what you’d say is healthy? I mean, I guess what would you, if you were an investor and you were looking at companies in these different size ranges, what would you recommend investors target when they’re looking for healthy ARR per employee?

I can’t answer that because it’s almost like any of these metrics, the biggest mistake we can make is be a slave to any one metric. Because if we’re a slave to purely unit economics, like CAC ratio, right? I might actually decrease my growth rate by 5, 10, 15% if I’m too cautious, right? If I’ve got great unit economics or in the 75th percentile for new CAC ratio, I’m probably might even put more fuel on that to grow even faster. So I don’t have a recommendation for ARR per employee for private companies.

I think it factors on what the investors and the operators are trying to do with that company and what their current unit economics are. Sorry.

I usually have- We have some questions later on, on what are the most important metrics. I think there’s going to be some, it depends answers, but we can talk through what it depends upon. Right.

So that’s all I really had here on metrics. And before I go to participant profile and some other educational assets, really, I’d like to have as many questions as possible. I love being challenged because it’ll help us make this research even better going forward.

So here’s one of those, it depends questions. Benchmarks are going to vary based on a number of factors. How do you think about segmenting SaaS companies to get the most relevant insights? Which are the most relevant firmographic dimensions to compare SaaS metrics? And I know you do some of this on your adjustable calculator on your site, but the question I have also in the growth equity context is say I have a portfolio of companies and they vary in terms of size, in terms of ASP, in terms of a bunch of things.

What are the best ones to isolate when I’m thinking about comparing companies to one another?

Yeah.

So do you see my screen now, which is the interactive benchmarking?

I do. And I’ll hide this question so we’re not blocking some of the bottom.

Sorry, my screen’s a little bit big. Let me go down one.

So, revenue, whether it’s ARR or gap revenue, we do it both ways, is one. But some metrics aren’t highly correlated to that, as we said, the average annual contract value is more correlated to things including CAC, CAC ratio, ARR, GRR. Go to market motion. We just started doing this two years ago because we wanted, because everybody was on this product- led bandwagon, right?

And one of the things that we identified two years ago was product- led companies, starting in the $ 20 to $ 30 million range, actually ended up having higher sales and marketing expenses as a percent of revenue than sales- led.

Interesting.

And you might wonder why. So as we went and tried to identify those variables, almost everyone said, we need to get more enterprise agreements. So we still have all the marketing spend to fill the top of the funnel. Now we can have account managers or more customer success managers, et cetera, to try to do upsells, cross- sells, et cetera. So that was one of the primary contributors to product- led actually having higher sales and marketing.

And what’s interesting, about a year ago, Kyle Poyer at OpenView, who has some great benchmarks on product- led companies, found even for public cloud companies or product- led, their sales and marketing were about four to five points higher as a percent of revenue than sales- led. Pricing models make a difference for segmentation, a coarser solution type. We’ve found some small differences for vertical industry SaaS versus horizontal applications on things like growth rate and NRR. Actually, headquarter location also makes a difference.

The other thing that’s really important to segment by is target customer segment, enterprise versus mid- market. Our problem in the research we do is we don’t get many companies who actually are calculating most of these metrics by enterprise versus mid- market versus SMB. So we’re not able to segment those because we have data sparsity challenges by segment. Everyone here has more than one customer segment. They got to do it.

So it’s interesting when investors are benchmarking their portfolio, say you’re a PE investor with 20 portfolio companies, one advantage that you have is data quality. You can get into the financials, you can get into their CRM, you can get much higher quality than a survey might afford you and nuance. The downside is sample size. You’ve only got 20 companies, not 2, 000 companies. So with that sort of set of constraints, how would you think about… You can only slice this so many ways before it’s only one company.

How would you think about grouping portfolio companies that would be most impactful?

Size.

Yeah.

ACV. Yeah. Those are the two that you always have to do.

That makes sense.

And then I would do it by either distribution model or pricing.

Yeah. Cool. So two questions that might not be in your wheelhouse, but I’ll check. One is on development efficiency metrics and one is on support metrics. Are either of those areas that you think about?

It’s not.

Okay.

You know who does a pretty good job on R& D metrics? It is OPEX Engine and Lauren Kelly.

Okay. I’m taking notes on all of these things that you’re mentioning, we’ll include them in the recap.

Yeah.

Now they are… You have to pay to get access to their benchmarks, but they started about two and a half, three years ago doing R& D efficiency. So that’s the best one I know of, R& D efficiency. Customer support, haven’t done it. I’ve done customer success. We have a partnership with Gainsight and we’ve done now, we’re conducting our third annual customer success benchmarks. Anything from how many CSMs per customers or per ARR percent of revenue spent on customer success which has a median of 6% right now.

So we have a lot of customer success ones, but not customer support.

Cool.

So we

All right, I think, do you have other slides, or I think those are most of the metrics, or most of the metrics- related questions, and we have some other grab bag questions.

All the questions you want to ask, I’ll leave this up here right now if you’re still seeing it. These are all the different assets we provide. Our only goal is to provide as much educational and thought leadership content that’s based upon real data, so we can make better metrics- informed and benchmark- validated decisions as an industry, and these are all the different assets we attempt to publish for that goal. Cool.

Awesome. Let’s, here’s kind of a fun challenge question. What are the most important metrics for a 20 to 30 million ARR SaaS company? And the piece that I would add to this is, it’s so easy to ask for 20 metrics. What are, like, what are the top five that you think are most telling?

Well, I think the first thing I would go to is, for public SaaS companies, right, we do some linear regression using an R- squared factor of what are metrics correlation to enterprise value to next 12 months revenue multiples, and growth has been and is, again, the highest R- squared, and it’s over, growth is about 38% R- squared right now.

Number two is NRR. NRR is very important, but so is Rule 40 now, and we did a session at last year’s SaaS Metrics Blues, I shouldn’t say we did it, Byron Dieter from Bessemer Ventures, who’s got over 200 exits of B2B SaaS companies, and one of their new partners, Samir Dhalakia, who was the CEO of SYNGRID, they’re saying that Rule 40 right now, as early as $ 15 to $ 20 million is very important to truly understand and work with your investors to talk about what the balance is.

Now, Bessemer just came out with a Rule of X, which does show that growth is 2. 3 times higher impact on valuations than free cash flow margins, but that balanced approach is very important. So at 20 to 30, of course, it’s going to be growth rate. Number two, I would start looking very aggressively at NRR, and then I would look at Rule 40 in your CAC efficiency metrics. Those are the four.

That’s nice, you even kept it tighter than five.

Well done. On the fifth, and it’s really a 2B, because 2A is NRR. A lot of people can hide churn by only looking at NRR because they have multiple products or they have pricing, and the way they calculate expansion ARR is advantageous to NRR. So 2B is gross revenue retention, so that would be your fifth.

You should never look at NRR without the context of GRR. We had a question on, is Rule of 40 still enough? Curious if BVP gave any more guidance on that.

You know, people are talking about the Rule of 50, Rule of 60, and yes, if you look at in the public marketplace, companies with a Rule of 60 are going to have higher enterprise value to next 12- month multiples, but I think the best thing to look at is Meritech Capital, and you can go right here. If you look at the SASmetricspalooza, benchmark. ai, SASmetricspalooza23, Alex Clayton is the general partner there, and they have the best public SAS slash cloud company benchmarks.

What he did was he showed a 12- box view of combinations of free cash flow margin and growth and where you got the highest enterprise value to revenue multiples, and I mentioned that earlier, that’s kind of in that 27% and above growth with 10% to 20% free cash flow margins. That’s the sweet spot, but companies with 10% to 20% growth and 20% to 30% free cash flow margins had much lower multiples. So, if you’ve got an investor that says it should be balanced, it should be 20- 20 or 25- 25, the data doesn’t suggest that’s what the public market wants.

They want growth over some level of free cash flow.

Yep. Here’s a definition question. How do you define ACV, especially with multi- year deals? Average or annual contract value if you’ve got multi- year deals?

Very common question. I would encourage you to go to SaaS Talk with the Metrix Brothers that Dave Kellogg and I do and look at the bookings, billings, and revenue episode. However, a lot of companies will do a three- year deal. It’ll be a $ 300K deal, but it’s $ 8, 120, right? Every year it goes up. So the question is, how do you record that for SaaS efficiency metrics, and how do you record that for gap revenue, right?

Yes.

So we believe the best approach is you do it the way the contract reads. So if the contract reads 80, 000 year one, 100, 000 year two, 120, that’s the ARR you should be using for all your efficiency metrics.

Simple enough. Well, not simple, but intuitive. All right, how about, do you have any benchmarks that break out the spend of sales versus marketing within that sales and marketing budget? What split should be sales versus marketing?

We do. And I could say across the total population, it’s 70- 30. 70% sales, 30% marketing when it’s a sales- led motion. However, the ACV is the number one corollary to that benchmark. If you have a lower ACV, the marketing percentage goes up and the sales percentage goes down. As you get larger, like over 100K, then sales, I think, I think the benchmark is 74% or 76% of your total sales and marketing spend, and 24% to 26% is marketing.

All right, we also have a question.

Another good source for that is the KeyBank Capital Markets Benchmarking Report for 2022 and 2023. They break it down like that in their report also. Cool.

Questions on conversion benchmarks. So these were, I was once responsible for trying to capture these and it was the bane of my existence to figure out what is a, you know, what is an opportunity and how do we make sure that lead to opportunity is accurate? Have you tackled that one? And do you have any data on conversion benchmarks?

We tackled it with Lean Data about two years ago. We’re tackling it in another research program right now that we’re going to be launching in about a month. However, the biggest issue is definitional. That’s probably what the person who asked that question is. That’s why the GTM Consortium has been filled. If nobody knows about the GTM Consortium, it’s a partnership that Winning by Design, GTM Partners and Pavilion put together, and they’re trying to standardize on the Bowtie Framework, which is the Winning by Design Framework.

So we all have the same definitions, the MQL to SQL, SQL to SQL. But the answer is I don’t think there are really good benchmarks out there. I would look at, excuse me, I would look at what Winning by Design’s been doing in combination with David Spitz and Bench Slides as one of the best sources of that. Because they go in, they got 100 plus customers. They do go in and try to validate that.

Any guidance on trends? Like has conversion, as you’ve done this survey over the past couple of years, do you think it’s been increasing or decreasing in terms of conversion rates through the funnel?

Cycle times have increased. Cycle times have increased on average by about 25 to 30%. Conversion rates from mid- funnel to close one has went down. And it’s went down because the close loss, no decisions went up from about 38% to 54% last year.

Yeah, I do hate the no decision phenomenon.

Unfortunately, the discipline of having a sales process identifies that in a stage two or stage three. It’s not where it needs to be. The best way to eliminate wasted sales expense and time is to try to qualify out those as early as possible on the cycle.

The ones that are going to be no decisions?

Yes.

Yeah. All right, another question. LTV is hard for land and expand business models. So if actually, please advise.

Well, yes and no. What you can do is do it on a time- based cohort basis. Let’s say you’ve got four years of history. You can look at the current average revenue per account that’s been there for since 2020 versus 2021 versus 2022 versus 2023. Then you can get a pretty good understanding of what customer lifetime value is at the three- year period or the five- year period. That’s the way we recommend doing it.

Because if you just take your entire customer base and divide it by ARR, it’s like how much of that is from customers five years ago versus one year ago.

Yeah. We also have a question on leading indicators, indicators that point to growth, looking for management operational ideas to optimize growth. I’m guessing this might be for somebody who’s got a long sales cycle or an enterprise sales motion.

In our SAS performance metrics framework, for each metric, let’s say it’s CAC ratio, we’ve identified the top five leading indicators that have direct causal impact on that lagging indicator. Let’s use CAC ratio, for example. Yeah. CAC ratio, yeah, you’ve got sales and marketing investment, you’ve got win rate, you’ve got cycle time, you have ACV. Boy, that sounds very prescriptive. But I think each company should say, what are my top three to five company level performance metrics that are really important to us?

Let’s say one of those is your CAC ratio or CAC payback period. You should identify in your company, what are the input leading indicators that have the highest impact on that, so you know it’s going to be win rate, it’s going to be ACV, it’s going to be cost per dollar of pipeline, it might be your marketing CAC ratio. Just identify those four or five, measure it right now, know what it is, and then start looking over 2, 4, 6, 8 quarters, what both the correlation and trends are. Cool.

That makes a lot of sense. We had a question on org metrics. For example, what percent of employees should be in product at different sizes? Do you have any org metrics data or is there anybody you’d point to for org metrics data?

I don’t. By the way, anything that I’ve said so far that I said very quickly, I know it’s true and it’s a fact. For this one, I don’t know if it’s battery ventures or insight partners, but one of those have some reports that came out in 2022 and 2023 that included that, but I don’t have it.

I will check. I’m trying to do. You’ve created quite the haul of other data providers, other reports that I’d like to aggregate and be able to share. I appreciate your generosity in networking to all these other tropes.

It’s okay.

We’re doing this because we’re trying to help the industry. The more people who have good quality benchmark data, hopefully, they’re better informed we can be as operators to inform our decisions.

Cool. Let me check to see if there are any. We got some questions that can we provide access to the report? Yes, we’ll make sure that we share where you can find the report.

It’s right up here at top. The first one, benchmark. ai. Oops, sorry.

We’ll also put it on the screen. Yeah.

Benchmark. ai slash 2024benchmarks.

Cool. I think unless somebody wants to sneak in one more question, we are at the hour and this has been an awesome conversation.

Hopefully, it’s valuable to anyone on the call today. If you have a question, you can send me an e- mail. I didn’t put my e- mail in here of all these assets, but my e- mail is ray at benchmark. ai. I post every day on LinkedIn about something different about metrics and benchmarks. Either of those, you can reach out to me and I’ll be happy to provide any feedback that you find that I think is appropriate.

Awesome. Thank you so much, Ray. This has been a really fun Friday conversation.

Thank you, everyone. Thank you for inviting me, Kate.

Awesome. Thank