What percent of revenue should a SaaS company spend on major expense categories? In this post we show COGS, R&D, S&M, and G&A as a percent of revenue for the full years ended 2024, 2023 and 2022. The data is for every SaaS company that has IPO’d since 2017.
Observations are below.
60+ co’s. The data set includes 63 companies in 2024, 67 companies in 2023 and 65 companies in 2022. If you see a “ — -“, that means the business was acquired sometime between 2017 and 2024, so no data is available. Note that all the data below will discuss medians only, not averages.
COGS. In 2024, 2023 and 2022, COGS were 26%, 26% and 27% of revenue respectively. These are big mature companies with scale, so the data in our view debunks the myth that COGS should be 20% of revenue for a SaaS company. That’s just not realistic. Note that profitable SaaS companies hover more at ~21% whereas unprofitable SaaS tends to come in at ~29%. We’re not sure why this would be, but it is striking.
Sales & Marketing. In 2024, 2023, and 2022, S&M was 39%, 40% and 46% of revenue respectively. The percentage decline makes sense to us as 2023 and 2024 were years in which SaaS companies really emphasized efficiency over growth. Again the difference between profitable and unprofitable SaaS is stark: profitable SaaS came in at 28% in 2024 whereas unprofitable SaaS came in at 45%. This makes sense as unprofitable SaaS grows far more quickly (22%) than unprofitable SaaS (9%) in part due to the commitment to S&M spend.
Research & Development. In 2024, 2023 and 2022, R&D was 25%, 25% and 27% of revenue respectively. R&D is a ‘black box’ whereby ROI is very hard to measure. So in our view R&D spend shouldn’t be over 30% of revenue for any SaaS company that is beyond the Series A. Again the chasm between profitable SaaS companies and unprofitable ones is wide: 18% versus 27% in 2024. This is due to the fact that unprofitable SaaS is investing far more in product led growth, and that is reflected in the growth rate of unprofitable SaaS (22%, versus only 9% for profitable SaaS)
General and Administrative. G&A was 20%, 21% of revenue in 2024, 2023 and 23% in 2022. Obviously this number is to be kept as low as possible at all times, and is similar for profitable and unprofitable SaaS companies.
Improved profitability. In 2024, 2023, and 2022 SaaS operating losses were -9%, -15%, and -28% of revenue. That’s a remarkable improvement, however it is coming at the expense of growth which can be very dangerous for valuation.
While these SaaS companies are large and mature, the data is a great guide to where Series A+ SaaS companies should be on their spend as a percent of revenue.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com or connect on LinkedIn.