Do big companies benefit from economies of scale? While the default answer may seem like ‘yes’, we wanted to see if that was really true. We looked at the sales and marketing spend of SaaS companies at the time they went public and compared that figure to revenue growth. Formulaicly, it’s revenue growth / sales and marketing spend. At the time the 83 companies in our data set went public (when they filed their S1’s), this figure was $0.64 cents on median and $0.97 on average. In other words, the typical SaaS company generated $0.64 of new revenue for every dollar of marketing spend at the time they went public which for our dataset was 2014 on median. The data is below.
So how does that same metric look today? For the companies that were still public, we did the same math for the year ended 2017 and only arrived at $0.54 on median and $0.77 on average. At the same time these companies had median revenue of $261mm and S&M spend of $91mm whereas in 2014, median revenue was only $100mm and sales and marketing spend was $42mm. So, while you may expect larger companies to benefits from economies of scale and be more efficient in selling, they’re really not.
Visit us at blossomstreetventures.com