Quarterly SaaS Payback Period Data

Payback period on spend is defined as net new revenue divided by net operating loss. It’s a fully weighted calculation that includes the cost of COGS, G&A, and R&D. Traditional views of payback period compare new revenue to S&M spend only, and while that’s good for evaluating just the S&M organization, it doesn’t account for all the costs of really running a business.

So what’s a good payback period in SaaS? We looked at the past 6 quarters of payback period for the last 62 SaaS IPO’s, which goes back to MongoDB in October 2017. The payback period data and observations are below.

Consistent performance. Publicly traded SaaS companies are achieving a payback period on total spend of 1.3 to 1.4 years. That’s a fine level of payback, especially given the median net dollar retention of these companies is 115%. With such high retention, each dollar of spend is actually creating a growing annuity. Payback period doesn’t account for the customer growing with you over time, so a 1.3 to 1.4 year payback period is even better than it sounds.

Profitability. The data above only looks at SaaS companies still burning cash. Those that are profitable or that don’t grow don’t have a measurable payback period. Payback period is only applicable to those companies that are burning cash to grow.

Shoot for a payback period inside of 1.5 years. If you start bleeding over 2 years, while that doesn’t sound terrible, your peers will be outperforming you and it will impact valuation or even your ability to raise money (for instance we wont invest in a company with a 3 year payback period, even if retention is excellent).

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