Measuring SaaS sales efficiency
One of the best ways to look at SaaS sales efficiency is to compare new revenue booked over a given time period divided by sales & marketing spend during the period (New Rev/S&M). While the sales & marketing expense in a period may not necessarily be attributable to a given period’s booked revenue due to long sales cycles, it’s still a good measure especially when looking at the trend. We looked at the sales & marketing efficiency of the last 73 SaaS IPO’s going back to MongoDB’s IPO in October 2017.
As you can see, on median the SaaS businesses have sales & marketing efficiency of $0.65 in the year they filed their S1 to go public. In other words, they generated $0.65 of new revenue for each $1.00 of sales & marketing spend. A couple other observations:
The average is higher. Note that while the median may be $0.65, the average is $0.93. The median SaaS company generated $168mm of revenue at IPO and $286mm on average. The higher sales efficiency at the average may indicate larger companies do have some economies of scale over smaller ones.
The last 20 have been productive. The last 20 IPO’s averaged $0.95 cents. MeridianLink and Infusion were exceptionally productive at $4.98 and $2.07 respectively.
Given that the median is $0.65, shoot for that figure or get as close to it as you can and you’ll be in great company.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at firstname.lastname@example.org. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.