2021 Financial & Operating Benchmarks: How to Become One of the ‘Haves’ of SaaS
In 2021 the ‘Rule of 40’ died, according to our latest 2021 Financial & Operating Benchmarks report that launched last week.
Today growth appears to be all that matters. And there’s more and more bifurcation between the ‘haves’ – the fast growers – and the ‘have nots’ of SaaS than ever before.
The ‘haves’, defined by growing quickly out of the gate and then maintaining 50% or faster revenue growth at significant scale, have seen their valuations skyrocket over the years. This is most visible among publicly traded companies.
For publicly traded companies that are growing 50% or faster, median valuation multiples have increased by an incredible 649% between 2015 and August 2021. Those growing by 10-30%, by comparison, have only seen multiples increase by 102% over that time period.
The new data reveals a similar picture for private SaaS startups.
OpenView has been tracking growth rates by ARR scale for four years running. Over the years median growth rates have stayed remarkably consistent (with a handful of exceptions). Even COVID-19 barely made a dent in the average growth trajectory.
But top performers have begun to far outpace their peers, especially for startups with less than $10M in ARR, and the gap between the ‘haves’ and ‘have nots’ has gotten wider than ever. In order for a $1-2.5M ARR business to be top quartile in 2021 they now need to be growing at 300% or faster. That’s triple the rate of 2020 (100%) and double that of 2019 (165%).
To the victor go the spoils and these companies are rewarded with abundant capital, enviable brand recognition, and an easier time attracting candidates. Growth begets more growth as the flywheel starts to turn.
That begs the question: how do you become one of the ‘haves’ in the first place?
Here are six areas to focus on in 2022.
1. Attract great talent
Any hyper-growth SaaS business relies not only on great talent, but also on an ability to quickly attract more and more great talent and retain them.
To state the obvious: hiring has never been harder. And it’s increasingly the number one issue keeping CEOs up at night.
In order to stand out, companies need to design their hiring process step-by-step well before launching a search, according to OpenView Talent Partner Steve Melia. That should include getting aligned on the role and its responsibilities, writing your job description, deciding who will be on your interview panel and the order of interviews, prepping each interviewer for what they’re looking for, and making sure everyone’s on the same page.
Then it’s critical to sell, sell, sell. The game has changed when it comes to recruiting. The first call with a candidate is no longer an interview; it instead needs to be 100% focused on setting the hook. Hiring managers should prepare by putting together pitch materials (usually a 2-3 page deck) to give candidates a deeper look at your company and culture – beyond what’s on your website. Send that to candidates before the interview so they can review it and start getting excited about the opportunity.
Your ability to sell hinges on your ability to foster a workplace culture where people actually want to work according to Postscript Co-Founder & CEO Adam Turner. For Gen Z employees, that increasingly means a culture of authenticity, transparency, and employee sentiment from the interview process – not simply compensation or perks.
Recommended resource: Read More Tips for Hiring Top Talent in Today’s Overheated Market
2. Get more from your existing customers
It’s tempting to prioritize new customer acquisition as your top growth priority.
Don’t forget that your best source of growth is usually right in front of you: your existing customers.
Start by tackling churn since expansion only takes you so far if you’re trying to expand fewer and fewer customers. Pro-tip: churn isn’t just a customer success problem; it’s a business-wide responsibility that requires contributions from each function.
Here’s what you can do to move the needle:
- Sales: Sell to the right customer and don’t get too greedy on the initial deal.
- Marketing: Market to existing customers rather than just prospects.
- Customer Success: Nail customer onboarding and the customers first 30 days.
- Product: Broaden the use cases for your product and look for ways to more seamlessly integrate into the user’s workflow.
- Operations: Measure product health indicators, aka the leading indicators that predict future retention.
You can also leverage your satisfied existing customers to win more future customers. Case studies and testimonials are a no-brainer, but there never seems to be enough of them. You might consider third party tools like Vouch or Loom to lower the barrier to entry for creating quick consumable content that can be used across multiple mediums and throughout the sales funnel.
Your customers can be a goldmine of data that prospects are craving; too many orgs are sleeping on this data. Look for ways to quantify customer insights to develop proprietary benchmarks and communicate the value of your product. These are incredible tools for both top of funnel (ex: State of X report) and for making your sales pitches come to life.
Recommended resource: Let’s Stop Calling Churn a Customer Success problem
3. Experiment with a usage-based pricing model
This year’s Financial & Operating Benchmarks revealed that usage-based pricing is on the rise. It’s now adopted by 45% of SaaS companies, up significantly from 34% last year. Usage models have been newly put in place at startups (ex: Cypress.io, Pulumi, Algolia), publicly traded companies (ex: New Relic) and even longtime incumbents (ex: Autodesk).
Usage-based pricing isn’t just trendy, it’s impactful. The data shows that companies with a usage-based model outperform their peers in both landing new customers (lower CAC payback) and expanding them (higher Net Dollar Retention).
There are ways to experiment with a usage-based model before diving in head-first. For example, try introducing an entry-level plan with a usage cap to give new users a chance to try out your product. Collaboration giant Box does this by selling a $5 per month Starter plan that includes 100 GB of storage (their Business plans range from $15-$35 per user per month and all include unlimited storage).
Alternatively, you might use a new product launch as an opportunity to test a usage model. Existing customers could get a certain amount of usage included for free – incentivizing them to try out the product – and then pay more as their usage grows. It’s a win-in.
Recommended resource: The Usage-Based Pricing Playbook
4. Start Building a Foundation for International Growth
I’ll be honest: international growth has always been a blindspot for me. It seemed like something that could be put off until domestic growth started to slow.
This is shortsighted, and I’m grateful that Chris Englund, VP of International Operations at Active Campaign, set me straight.
For starters the opportunity is jaw-dropping. 95% of the world’s population lives outside of the US and (naturally) they need business software to power their working lives. And international revenue is, relatively speaking, untapped as US-centric companies continue to concentrate sales and marketing efforts domestically.
Successful internationalization requires setting up a strong foundation well before you need it. For example, folks would be wise to hire for cultural and linguistic diversity early on as a way to (literally) give international users a voice in roadmap decisions. Or you might add more discipline to your operational process. Setting a clear company mission and leveraging planning frameworks like OKRs or V2MOMs might sound trivial, but this type of clarity and consistency is absolutely necessary when you take things overseas.
Keep in mind that going international is close to, if not on par with, launching usage-based pricing. True success requires treating it as a company-wide shift, not one person’s pet project.
Recommended resource: International Growth is No Longer Optional for SaaS Companies
5. Become a process-driven GTM team
Growth doesn’t happen by accident. The best go-to-market teams devote a disproportionate amount of time to designing, implementing, monitoring, and optimizing the customer journey over time.
A consistent process leads to consistent results. A consistently best-in-class process leads to consistent results that outperform your peers.
You can start by defining what your ideal sales process should look like. Learn by picking apart and documenting the processes in past deals that should become standard practice for the entire team in the future. These deal reviews should include a 360-degree view of the buyer journey including your internal actions and the customer’s external actions.
As you enforce the process with your team, you’ll want to define the top go-to-market KPIs that are true leading indicators of future performance. Our favorites include: win rate, days to close, time to quota, average quota attainment, and percentage of reps who hit 80%+ of their quota.
Recommended resource: Highspot’s Ultimate Guide to Sales Acceleration
6. Explore Untapped Revenue Streams
For many of today’s leading SaaS companies, software has become a revenue stream rather than the revenue stream. Whether it’s Shopify with their fast-growing payments and merchant services businesses, Toast with their eye-popping FinTech business, or even HubSpot with their announcement of moving into B2B payments, SaaS is entering uncharted territory.
The truth is that we’re in the early innings of non-software revenue streams like payments, FinTech, marketplaces, marketing/lead generation, and even advertising (yep, even Zoom is now piloting ads).
These can be lucrative, too. HubSpot’s stock price surged by 16% – or $5 billion – just on the announcement that they were adding B2B commerce and payment functionality even though it was still in beta.
There’s usually not an individual at a startup who can spend their time plotting out new revenue streams. Don’t let that stop you from doing the work and validating potential opportunities – before your competitors beat you to it.
Recommended resource: The New SaaS Metric You Should Be Tracking
Get the full report
View the interactive page and download the full 2021 Financial & Operating Benchmarks report here.
What is CAC Payback? How do you measure it? We break down the basics of this metric and why it’s important in your SaaS business in this article.