What percent of revenue should a SaaS company spend on major expense categories? In this post we show COGS, R&D, S&M, and G&A as a percent of revenue for the full years ended 2023 and 2022. The data is for every SaaS company that has IPO’d since 2017.
Observations are below.
65 IPO’s since 2017. The data set includes 62 companies in 2023 and 65 companies in 2022. Three were acquired between 2023 and 2022. If you see a “ — -“, that means the business was acquired sometime between 2017 and 2022, so no data is available. Note that all the data below will discuss medians only, not averages.
COGS. In 2023 and 2022, COGS were 25% and 27% of revenue respectively. These are big mature companies with scale, so the data in our view debunks the myth that COGS should be 20% of revenue for a SaaS company. That’s just not realistic.
Sales & Marketing. In 2023 and 2022, S&M was 40% and 46% of revenue respectively. The percentage decline makes sense to us as 2023 was a year in which SaaS companies really emphasized efficiency over growth.
Research & Development. In 2023 and 2022, R&D was 25% and 27% of revenue respectively. R&D is a ‘black box’ whereby ROI is very hard to measure. So in our view R&D spend shouldn’t be over 30% of revenue for any SaaS company that is beyond the Series A.
General and Administrative. G&A was 21% of revenue in 2023 and 23% in 2022. Obviously this number is to be kept as low as possible at all times.
Improved profitability. In 2023, SaaS operating losses were 15% of revenue versus 28% in 2022. That’s a remarkable improvement, however it is coming at the expense of growth which can be very dangerous for valuation.
While these SaaS companies are large and mature, the data is a great guide to where Series A+ SaaS companies should be on their spend as a percent of revenue.
Thank you for your readership. See more blogs and SaaS data at blossomstreetventures.com. Email the author at sammy@blossomstreetventures.com.