S&M efficiency in SaaS has not scaled

Below we compare the change in revenue at the time a SaaS company IPO’d to the sales and marketing spend in that same year. That simple formula is the “Sales Efficiency”. For example, if revenue for a SaaS company grew from $100mm to $150mm while S&M spend was $80mm, the Sales Efficiency would be calculated as ($150-$100)/$80mm resulting in $0.63 of new revenue for every $1 in S&M spend that year. Observations and data are below:

No scale. Of the last 158 SaaS IPOs we looked at, the median S&M efficiency was $0.66 cents and the average was $0.97. In other words, the typical SaaS company on median generated $0.66 of new revenue for every dollar of marketing spend. The year prior to the public filing, the median was $0.71 and the average was $0.94. So as these companies got bigger, they actually got less efficient.

Lack of data. Over time, SaaS companies have stopped reporting 3 full years of financials. For instance, of the first 80 companies on the list, 73 provided 3 years of data so we could do the analysis. Of the next 78 companies, only 23 provided 3 years of data. The list is in order of IPO, and the lack of more recent data hurts the analysis.

More recent data. If we isolate the last 20 IPO’s, the median and average in the year of IPO are $0.66 and $0.75 respectively. Interestingly that means SaaS companies have not gotten better at improving Sales Efficiency over the years.

Read the full article here: https://blossomstreetventures.medium.com/s-m-efficiency-in-saas-has-not-scaled-328dd70907bc