Measuring SaaS sales efficiency

Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Connect on LinkedIn or email him directly at sammy@blossomstreetventures.com, especially founders at all stages.

There are many ways to measure SaaS sales & marketing efficiency. One of the simplest is to look at 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.

In order to know what a good level of New Rev/S&M is, we looked at the sales & marketing efficiency of the last 36 SaaS IPO’s going back to MongoDB’s IPO in October 2017. This data comes from their S1 filing which is a prospectus issued before going public.

As you can see, on median the SaaS businesses have sales & marketing efficiency of $0.63 in the year they filed their S1 to go public. In other words, they generated $0.63 of new revenue for each $1.00 of sales & marketing spend. That’s quite good given that on median, SaaS businesses have net dollar retention of 110%+ at the time of going public meaning they keep and grow the prior year’s revenue. In other words the $0.63 grows to $0.70 next year, $0.77 in the 3rd year, etc. If that growing revenue stream only cost you $1.00, over time you’ll build an excellent, profitable business. Note that while the median may be $0.63, the average is $0.82 and indeed the last 20 IPO’s averaged $0.92 cents.

Given that the median is $0.63, shoot for that figure or get as close to it as you can and you’ll be in great company.