The return on S&M spend in SaaS has steadily declined. To see this, we compared the efficiency of S&M spend in 2024 against the IPO-year metrics for every SaaS company that’s gone public since October 2017.
2024 and 2023 Data. If you see “ — -” in the table, that company was acquired between 2017–2022, leaving 63 still public. On median, SaaS companies generated $0.36 of new revenue for every $1 of S&M spend in 2024, down from 2023’s $0.42.
IPO Data. At IPO, the median was $0.65 per $1, and the average was $0.91. That drop — from $0.65 to $0.42 — is a 35% decline in efficiency. SaaS companies today are much worse at turning S&M dollars into revenue.
Why is this happening? We have some guesses.
Post-COVID Hangover. Many businesses ramped up spending during the pandemic, and we’re still seeing the fallout.
-Market Saturation. The SaaS space may be over-saturated, with limited room for growth in certain markets.
-Economic Uncertainty. Fears of a recession at the end of 2022 likely led to more conservative spending for software in 2023. Many companies were still tepid on their outlook in 2024.
-Advertising Challenges. Apple’s privacy changes, the decline of third-party cookies, and rising digital ad costs have made online marketing less effective.
-Changing Sales Cycle: Companies are tightening belts, making it harder to justify aggressive S&M spend. It has elongated sales processes, scrutiny is up, there are more constituents in the decision process, and overall software is just harder to sell.
-AI is eating budget. Budget that would otherwise go to software spend is instead going to AI infrastructure and models.
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.