SaaS Metrics in Context: What Growing Software Companies Can Learn from Their Peers

The key findings in OpenView’s latest report reveal actionable SaaS metrics put into context for expansion-stage software companies.

At the expansion stage, successful software-as-a-service (SaaS) companies generally have one thing in common: an overarching strategy to target either very fast growth or profitability at a sustainable growth rate.

Of course, attaining the right combination of growth and profitability isn’t easy, and ultimately hinges on having a finely tuned economic model that allows companies to minimize expenses while managing growth. Creating that kind of model requires a thorough understanding of basic operating and financial metrics that measure your company’s profitability, efficiency, and growth rates, as well as a solid understanding of how your company stacks up against its peers.

There have been numerous studies in recent years to establish benchmarks for these metrics using data from public or private software companies (see Bessemer Venture Partners and Matrix Partners’ David Skok for great examples). While they do an excellent job of showing CEOs and managers which metrics they should be focusing on to drive their business, they don’t analyze historical results to see what is actually going on at these businesses. Not only that, but because they incorporate a broad range of companies by revenue size or customer focus, their findings are typically less applicable to companies at the expansion stage.

That’s why OpenView decided to publish its own SaaS metrics report, “Peer Review: The SaaS Metrics That Matter Most at the Expansion Stage,” that is sharply focused on the growth and profitability metrics that are most relevant to SaaS companies at the expansion stage, and provides a glimpse into the actual operating metrics that SaaS companies, at varying stages of maturity, are experiencing. 

In the full report, developed from a survey of more than 160 SaaS businesses, we provide our insights into the relationship between key operating metrics and growth drivers, and how those metrics impact a SaaS company’s growth and profitability.

There are three takeaways that I find particularly interesting:

1. While already well known, the report shows that a finely tuned economic model revolves around two primary drivers: sales and marketing efficiency, and churn. Optimizing for both of these is the key to building a sustainable, high-growth SaaS business.
2. While it may be acceptable in certain circumstances to pay more than a dollar to acquire one dollar of ACV, the fastest growing businesses in our survey were also the most efficient with their spending to acquire new customers.
3. As a company matures and shifts its focus from building product to driving revenue, it should see a very significant uptick in average revenue per employee. At this stage, new hires are more likely to be revenue generators.

Actionable SaaS Metrics Put into Context

While we think you will find the analysis in our report to be more contextually relevant to your expansion-stage company, executive teams and managers must still make their own evaluations and interpretations of what those metrics mean to their business.

The bottom line, however, is that context and relevance are critical to the SaaS metrics that influence strategic decision-making. The more stage and size-appropriate data you’re able to collect, the easier it will be to assess where your company stands relative to its peers and determine which factors may influence or impede its own ability to scale.

Infographic

OpenView surveyed more than 160 SaaS executives and consultants to generate the data for the report and teamed up with KISSmetrics to illustrate some of the key findings in the infographic below.

See the Full Report for More

Source: SaaS Operating Metrics Uncovered

Photo by: Martin Kenny