After 20 years+ of taking a data-driven metrics informed approach to scale subscription based businesses and the last 10+ years of researching and developing a proprietary database of SaaS industry benchmarks, the answer is it depends on what metrics you are trying to find and how you plan to use the benchmarks.
There are multiple sources of SaaS performance metrics, but no single source meets all needs. Finding relevant benchmarks is like an Easter egg hunt, especially if you are looking for operational benchmarks that enable CEO’s, CFO’s and other operating executing to understand how their customer acquisition, customer expansion and customer retention processes are performing as measured against like peer cohorts.
For more traditional Enterprise Valuation Metrics such as Customer Acquisition Cost (CAC), CAC Ratio, CAC Payback Period, LTV:CAC Ratio, Gross Retention, Net Retention, Logo Retention, Growth Rates and Average Revenue Per User (ARPU) there are several good “survey” based approaches and reports available.KeyBanc Capital Markets (formerly Pacific Crest Securities), SaaS Capital, and OpenView Advisors conduct annual surveys and continue to increase the number of participating companies. These annual surveys only include 400-1,000 companies, and too many of the participating companies are in the less than $5M ARR category.
For SaaS executives who are experiencing a transition to the next level of scale, such as hitting $10M/$25M/$50M/$100M ARR, understand these levels of success introduces new challenges that require different strategies, tactics and often organizational skills.
Bessemer Venture Partners provides a Public SaaS Company Financial Performance Benchmarks within their Emerging Cloud Index. This index includes more traditional public SaaS company valuation metrics such as market cap as measured by revenue multiples.
For more detailed Operational Performance Metrics and Key Performance Indicator Benchmarks, there are a few Advisory Service companies, such as TOPO (recently purchased by Gartner) and SiriusDecisions that have SaaS Industry Benchmarking research and reports available. SiriusDecisions offers annual subscription access to their Benchmark Portal, but its cost is often beyond the majority of SaaS companies cost/value threshold.
This research have traditionally been provided as a secondary offering to their core consulting business as a value add for their Advisory Service customers.
OPEXEngine takes a more “Data Centric” approach to collecting and publishing benchmark data, by offering paid access to their proprietary data through their BenchmarkEngine.
ProfitWell, a pricing advisory service provider and BareMetrics, a SaaS and Subscription analytics solution have created an API centric data capture process with many of the leading Subscription Management platform vendors such as Stripe, Recurly, Braintree and Chargebee. This approach provides granular insights into subscription centric metrics such as renewal rates, gross/net retention and average ACV.
Nathan Latka, founder of GetLatka publishes a SaaS industry podcast and magazine, has developed a robust SaaS Financial Performance data set that captures the metrics shared in over 3,000 interviews with SaaS CEO’s. These CEO’s share company specific metrics including ARR growth rates, Average Contract Value, Average Revenue per Unit (ARPU), Net/Gross Retention Rates and CAC/CAC Payback period. These metrics are company specific oriented, provide a point in time perspective and comparing your KPI’s versus like company cohorts requires additional data manipulation and analysis.
Where do I find operational benchmarks?
SaaS Operating Benchmarks are harder to find than SaaS Enterprise Valuation Metrics, and when they are available they primarily focus on function by function metrics. Taking this departmental approach can lead to lack of alignment and shared goals across all functions that impact customer lifecycle efficacy. They also neglect to factor in the unique attributes of a company, such as size, distribution model and target buyer(s).
Several consulting firms and SaaS platform vendors providers use survey-based research and reports as an educational, awareness building and demand generation vehicle. These surveys typically cover compensation information and/or performance metrics specific to a function versus providing insights into the entire process such as Customer Acquisition, Expansion or Retention. Functions and topics covered include: 1) Sales Development, 2) Field Sales and/or Inside Sales; 3) VP Sales Compensation; 4) AE Compensation; 5) SDR Compensation; 6) Customer Success Performance Metrics, 7) Marketing Funnel Performance Metrics.
The Bridge Group, an inside sales consulting firm provides a very good “give to get survey and report” based offering. Having the longest tenure of Inside Sales and Field Sales research, I have found their compensation and organization structure reports extremely valuable.
SaaS platform vendors conduct point in time surveys, acting as thinly veiled demand generation campaigns, however, they typically are not maintained over multiple years to highlight evolving trends and themes. These vendor specific surveys are used primarily to capture metrics that highlight the value of their platform, and do not typically take a holistic, operational view of the entire end to end process.
How accurate and statistically valid are the available benchmarks?
That is a loaded question, and often comes with hidden meaning and/or far too many experiences with board members, investors, and/or operating executives who share historical or even anecdotal metrics and KPI’s that may or may not be relevant to your existing environment.
Having industry benchmarks and KPI’s that can be filtered by variables that reflect your company attributes, including but not limited to: 1) ARR/Revenue Size; 2) Average Annual Contract Value; 3) Executive/Department Buyer; 4) Growth Rates; 5) Application type – vertical/horizontal, function/infrastructure; 6) Capital Raised and: 7) Target Industry are more valuable, as they enable a company to analyze their own KPI’s against external benchmarks using a “Like Peer” Cohort approach.
Equally important to using a “Like Peer” cohort approach, is how are the Enterprise Valuation Metrics being calculated. This topic is a thesis in and of itself, but suffice it to say I have seen multiple formulas being used for SaaS Enterprise Valuation Metric such as CAC (New Business), CAC (New + Expansion), Payback Period, Gross Retention, Net Retention, Gross Margin, etc..
Factors not being used consistently to calculate Enterprise Valuation Metrics include, but are not limited to: 1) Where do Customer Success costs go – Sales or COGS; 2) How does Gross Margin factor into CAC payback period; 3) what time period(s) to use for Retention Rates; 4) How is LTV Calculated; 5) How do marketing costs factor into New Name Customer CAC versus Expansion CAC; and oh so many more examples which for the “purist” can taint the credibility of available benchmarks.
Today, SaaS companies should strive to understand what operational KPI’s they currently capture across the entire Customer LifeCycle (beyond Enterprise Valuation Metrics), what it takes to instrument capturing the required inputs and how they are calculating Enterprise Valuation Metrics.
An important item to understand is how the data collected is smoothed to ensure outliers, especially in a survey-based research model, are not materially biasing the benchmarks. Most published research on SaaS metrics provide mean/median/average data and does not allow operating executives to understand more granular insights such as which quartile or even percentile they fall into.
My revenue operations and financial planning analysts are too busy on other priorities, how do I benchmark my KPI’s without spending too much time and money?
Partnering with former senior operating executives, who have a wide variety of experiences, access and insights to industry benchmarks and possess applicable cross-functional experience to provide strategic and tactical recommendations on how to capture, calculate and effectively leverage industry benchmarks is a good starting point.
Being able to ensure the current KPI’s being collected are both relevant to the business challenge being addressed AND are captured and calculated correctly is a critical first step.
Capturing and reporting Key Performance Indicators, Metrics and Benchmarks to board members and investments should NEVER be the ultimate goal. Leveraging the insights gained from measuring internal KPI’s against external benchmarks to identify opportunities for improvement and then quickly turning those insights into action is critical to increasing Revenue Performance.