Measuring SaaS sales efficiency

There are many ways to measure SaaS sales & marketing efficiency. One of the simplest is to look at 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 decided to take a look at the sales & marketing efficiency of 99 publicly traded SaaS companies at the time they went public. This data comes from their S1 filing which is a prospectus issued before going public.

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As you can see, on median the SaaS businesses have sales & marketing efficiency of $0.64 in the year they filed their S1 to go public and $0.66 the year prior. In other words, they generated $0.64 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 $0.66 grows to $0.72 next year, $0.79 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 $0.65, the average is $0.95 and indeed the last 20 IPO’s since 2018 averaged $0.74 cents (highlighted in green).

Also note that SaaS doesn’t really scale: Even though median revenue grew from $42mm to $66mm to $106mm for the data set in the years prior to going public, the sales efficiency was remarkably similar at $0.66 and $0.64 respectively. So don’t yell at your VP of Sales if the metric isn’t improving each year because you think scale applies; it doesn’t when it comes to sales and marketing efficiency.

Given that the median is $0.64, shoot for that figure or get as close to it as you can and you’ll be in great company.

Visit us at blossomstreetventures.com and email us directly with Series A or B opportunities at sammy@blossomstreetventures.com. Connect on LI as well. We invest $1mm in growth rounds, inside rounds, small rounds, cap table restructurings, note clean outs, and other ‘special situations’ all over the US & Canada.

Written by

co-founder at Blossom Street Ventures

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