How to measure SaaS sales efficiency

There are many ways to measure SaaS sales & marketing efficiency. One of the simplest is to look at 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.

In order to know what a good level of New Rev/S&M is, we decided to take a look at the sales & marketing efficiency of 95 publicly traded SaaS companies at the time they went public. This data comes from their S1 filing which is a prospectus issued before going public.

As you can see, on median the SaaS businesses have sales & marketing efficiency of $0.65 in the year they filed their S1 to go public and $0.66 the year prior. In other words, they generated $0.65 of new revenue for each $1.00 of sales & marketing spend. That’s quite good given that on median, SaaS businesses have net dollar retention of 110%+ at the time of going public meaning they keep and grow the prior year’s revenue. In other words the $0.66 grows to $0.72 next year, $0.79 in the 3rd year, etc. If that growing revenue stream only cost you $1.00, over time you’ll build an excellent, profitable business. Note that while the median may be $0.65, the average is $0.95 and indeed the last 12 IPO’s averaged $0.69 cents (highlighted in yellow).

Given that the median is $0.65, shoot for that figure or get as close to it as you can and you’ll be in great company.

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