The ROI on S&M spend in SaaS worsened

The return on S&M spend in SaaS has gotten worse over time. We show this by comparing the return on S&M spend in 2023 versus the return on S&M spend at the time of IPO, for every company that has IPO’d since October 2017. First let’s start with the data from 2023 below (if you see a “ — -“, that means the business was acquired sometime between 2017 and 2022, so no data is available). In total there are 62 companies still public.

As the data shows, on median the typical SaaS company in the data set is currently generating $0.42 of new revenue for every dollar of S&M spend. On average the figure is $0.42. Only 11 of the companies generate $1 or more. The math is simply 2023 revenue minus 2022 revenue all divided by S&M spend in 2023.

So what was the data at the time of IPO? Below is that data and it shows on median the typical SaaS company in the data set was generating $0.65 of new revenue for every dollar of S&M spend at the time of IPO. On average the figure was even larger at $0.92.

The difference between a median of $0.42 today and $0.65 at the time of IPO for the data set is truly staggering. SaaS companies have become 35% less efficient at generating new revenue with their S&M spend. So what do we think is happening? These numbers probably reflect some covid hangover, the world may be over-softwared generally, there were fears of a recession at the end of 2022 that likely made for more conservative budgets during 2023, marketing on the internet has become far less efficacious generally due to Apple’s privacy rules, cookies are having issues, and the list goes on. Overall, it’s a sobering picture and in total it means we all need to be more patient with the return on our S&M spend. Good luck to us all.

Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.