One of the best ways to look at SaaS sales efficiency is to compare 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. We looked at the sales & marketing efficiency of the last 78 SaaS IPO’s going back to MongoDB’s IPO in October 2017. More specifically we looked at the metric at the time of IPO, as that’s when these companies are closest to being private venture backed Series A/B/C companies.
As you can see, on median the SaaS businesses have sales & marketing efficiency of $0.66 in the year they filed their S1 to go public. In other words, they generated $0.66 of new revenue for each $1.00 of sales & marketing spend. A couple other observations:
The average is higher. Note that while the median may be $0.66, the average is $0.91. The median SaaS company generated $198mm of revenue at IPO and $308mm on average. The higher sales efficiency at the average may indicate larger companies do have some economies of scale over smaller ones. That said MeridianLink and Infusion were exceptionally productive at $4.98 and $2.07 respectively, and names like that are pulling up the average.
The last 20 have been productive. The last 20 IPO’s averaged $0.69 cents. If we go back to the first IPO on the list (MongoDB in 2017), the first 20 companies on average did $0.70 cents. Newer SaaS companies therefore are no better at S&M efficiency than older ones.
Given that the median is $0.66, shoot for that figure or get as close to it as you can and you’ll be in great company.
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.
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