SaaS Capital conducts a survey of private, B2B SaaS company metrics in the first quarter of each year. Our 10th annual survey, completed in March 2022, saw more than 1,500 SaaS companies respond. This post summarizes benchmarking data around the topic of spending. Survey takers were asked, “What percentage of revenue is currently spent on the following? (Percentages should total less than 100 if your company is profitable, and more than 100 if it is not.)” Here are the top-line results for companies with at least $1 million in annual recurring revenue (ARR).
What percentage of revenue do SaaS companies spend on sales?
- The median percent of annual recurring revenue spent on selling costs is 16%, down 11% from the previous year.
What percentage of revenue do SaaS companies spend on marketing?
- The median percent of annual recurring revenue spent on marketing is 10%, up 11% from the previous year.
What percentage of revenue do SaaS companies spend on customer support and customer success?
- The median percent of annual recurring revenue spent on customer support and customer success is 11%, down 9% from the previous year.
What percentage of revenue do SaaS companies spend on Cost of Goods Sold (excluding Customer Support/Success)?
- 5% on Hosting
- 5% on DevOps
- 9% on Pro Services CoGS
- 5% on Other CoGS
What percentage of revenue do SaaS companies spend on research and development?
- The median percent of annual recurring revenue spent on research and development is 22%, down 12% from the previous year.
What percentage of revenue do SaaS companies spend on general and administrative costs?
- The median percent of annual recurring revenue spent on general and administrative costs is 15%, down 25% from the previous year.
SaaS Spending by Company Funding
As discussed in 2022 Private SaaS Company Growth Rate Benchmarks, equity-backed funding is generally correlated with growth. It may not be a causal relationship, but there has been a historical relationship. On median, bootstrapped companies with at least $1 million in ARR report growing at 30% per year, whereas companies that have raised venture capital with at least $1 million in ARR are growing at 41% annually. The chart below shows median spend benchmarks, as a percent of ARR, for equity-backed companies and bootstrapped companies with at least $1 million in ARR.
The obvious takeaway is that bootstrapped companies are spending less (and are profitable), while equity-backed companies are operating at a loss to support a goal such as growth. The most dramatic differences include equity-backed companies spending approximately 44% more on marketing, 61% more on R & D, and 70% more on general and administrative costs while spending 100% more on sales.
The increased spending by equity-backed companies on sales, marketing, and R&D is somewhat expected. The difference in general and administrative costs is noteworthy. One possible explanation for why equity-backed companies spend more is the need for a robust administrative and finance team to support reporting requirements to investors, including regular board meetings and audits.
Drilling down on growth and funding sources, we compare companies growing above their respective median growth vs. those growing below their respective median.
The difference between higher-growth bootstrapped companies and lower-growth bootstrapped companies is subtle. Higher-growth bootstrapped companies spend 22% less on G&A while spending 10% more on sales and 33% more on R&D.
The difference between higher-growth equity-backed companies and lower-growth equity-backed companies is more pronounced. Higher growth equity-backed companies spend 45% more on sales and 50% as much on marketing vs. lower growth equity-backed companies. The higher-growth equity-backed companies also spend approximately 50% more on R&D and 18% more on general and administrative costs.
SaaS Spending by ARR Levels
For benchmarking purposes, another metric by which to compare your business to your peers is by revenue scale.
The chart above breaks spending levels down by company size. For example, a typical B2B company with $3 Million to $5 Million in ARR spends the following as a median percent of ARR:
- 5% on Hosting Costs
- 20% on DevOps Costs
- 10% on Pro Services CoGS
- 5% on Other CoGS
- 10% on Customer Support/Success
- 10% on Selling Costs
- 10% on Marketing Costs
- 20% on Research and Development
- 10% on General and Administrative
The charts above plus additional data are available in the summary report below.
SaaS Capital® pioneered alternative lending to SaaS. Since 2007 we have spoken to thousands of companies, reviewed hundreds of financials, and funded 80+ companies. We can make quick decisions. The typical time from first “hello” to funding is just 5 weeks. Learn more about our philosophy.
FAQs
The overall median growth rate for all companies in the survey registered 40.0%. This is up from an overall median of 29.6% in 2020 and puts growth at the same pre-pandemic levels seen in 2019.
How to value a SaaS business in 2022? ›
To calculate SaaS valuation, investors take into consideration several metrics, including ARR, income, SDE-based valuation, EBITDA-based valuation, growth rate, NRR, gross margin, profit margins, revenue and revenue retention, etc.
What is the B2B SaaS benchmark for 2023? ›
B2B SaaS companies in 2023 are experiencing an average annual revenue growth rate of 30%. To achieve a similar growth trajectory, focus on acquiring new customers, upselling existing customers, and expanding your market presence.
What is the benchmark for SaaS spend? ›
The general rule of thumb for spending in SaaS is 40/40/20. In other words, 40% of operating expense should be on R&D, 40% should be on sales and marketing, and 20% should be on G&A.
What is rule of 40 in SaaS? ›
The Rule of 40 is a principle that states a software company's combined revenue growth rate and profit margin should equal or exceed 40%. SaaS companies above 40% are generating profit at a rate that's sustainable, whereas companies below 40% may face cash flow or liquidity issues.
What's a good SaaS growth rate? ›
Conclusion. In conclusion, a good growth rate (m) for SaaS startups is around 7-8%. However, the ideal growth rate can vary based on factors such as company size, industry, and investment.
What is rule of 40 SaaS 2022? ›
SaaS KPI Metric: Rule of 40 Guideline by Brad Feld
In recent years, the 40% rule has gained widespread usage as a popularized measure of growth by SaaS investors. The Rule of 40 states that if a company's revenue growth rate were to be added to its profit margin, the total should exceed 40%.
How to price my B2B SaaS? ›
To calculate cost-based pricing for your SaaS company, simply calculate how much a product takes to develop and maintain, then add a small percentage mark-up to determine what you'll charge. For example, if your software costs $100 to design, with a 30% mark-up, you can sell this for $130 to receive a 30% profit.
What is the formula for SaaS capital valuation? ›
The formula is: Valuation = ARR x Growth Rate x NRR x 10. Once you have this number, you adjust it based on the gross margin. Let's use an example to make it easy to understand.
What is a good CAC for B2B SaaS? ›
Traditionally, SaaS businesses should aim for a CLV:CAC ratio of 3:1. However, some SaaS marketers believe that a 4:1 ratio indicates a great business model. A ratio of 5:1 could suggest that you're growing quickly.
SaaS companies often focus on a single product or service and typically convert at around 15%-20%. Since SaaS products require customers to enter into longer-term commitments with the company, their demo conversion rate is usually higher than in other industries.
What is a good B2B SaaS churn rate? ›
What churn rate should companies typically aim for? Ideally, SaaS companies should aim for annual churn rates (either dollar churn or customer churn) of no more than 8% if they want to grow sustainably.
What is a healthy CAC in SaaS? ›
As a general rule, SaaS companies should strive for a CLV:CAC ratio of 3:1 to be profitable. Use the profit per customer formula above to determine your current ratio. For example, if the company's average CLV is $310 and the CAC is $95, that's roughly a 3:1 ratio, meaning your company is on a good profitability track.
What is a healthy margin for SaaS? ›
A good SaaS gross margin is anywhere from 70% to 85%. However, one thing to keep in mind is that gross margins are typically lower in a company's early stages than in its later stages.
What is the Ebitda benchmark for SaaS? ›
The median EBITDA margin for publicly traded SaaS Companies typically sits around 37%, meaning just under half of the companies meet the Rule of 40.
What is the growth of SaaS 2022? ›
Growth of the SaaS market isn't likely to slow down
In 2021, it was estimated at approximately $152.18 billion. In 2022, this value increased to $176.62 billion, growing by around 16% in one year. In 2023, the value of the SaaS market is expected to reach $208.1 billion, which is 17.5% more than in 2022.
What is the state of SaaS in 2022 Growth Trends & Statistics? ›
Since 2015, the SaaS industry grew from $31.4 billion to an estimated $1617.1 billion in 2022. That equates to over 5x growth in only seven years. The SaaS industry is projected to experience its largest annual growth between 2022 and 2023, reaching a value of $195.2 billion by the end of this year.
What is the 2022 benchmark engagement rate? ›
The Hubspot study found that the average Instagram engagement rate globally was 5.86% in 2022. And the average number of engagements per post was around 460.
What is the CAGR of the SaaS industry? ›
As per SaaS market forecast the post COVID-19, the SaaS market size was valued at $148.75 Billion in 2021 and is projected to reach $702.19 Billion by 2030, growing at a CAGR of 18.82% from 2020 to 2030.
