2020 Expansion SaaS Benchmarks: Getting Back to Hyper-Growth

When we were preparing the 2020 expansion SaaS benchmarking survey, our biggest question was: “How did COVID-19 and the economic downturn affect private SaaS companies?”

In short: It made SaaS companies even stronger.

This year’s report includes data from more than 1,200 respondents, including 400 respondents from 2020 alone. Respondents were primarily CEOs (38%) and CFOs (29%) at expansion stage software companies with $1 to $20MM in annual recurring revenue (57%). We’re sharing our findings to help SaaS companies make better financial and operating decisions—decisions that are particularly important right now given this period of economic volatility as well as the ongoing COVID-19 pandemic.

  • Growth rates remained surprisingly high, proving again that SaaS products are sticky and recession-proof. Microsoft’s Satya Nadella commented that “we’ve seen two years’ worth of digital transformation in two months.” The median growth rate for 1H 2020 was 43%, down only slightly from 48% in our 2019 survey despite business closures and record unemployment.
  • Folks prioritized their existing customers. Expansion dollars are far more profitable than net new ones. Despite an uptick in logo churn attributable to COVID-19, net dollar retention was as strong as ever. The median NDR for 1H 2020 was 102%, up slightly from 99% in our 2019 survey.
  • Companies were (surprisingly) efficient with their sales and marketing dollars. GTM budgets in particular were pared back as companies focused on their core rather than going after experimental bets that might have distracted them. CAC payback periods remained quite healthy. Some of this is a natural result of hiring slowdowns (new employees take time to become productive) and making necessary cuts to unprofitable lead generation campaigns.
  • Product and engineering became a larger line item on the P&L, at least on a relative basis. It now matches sales and marketing spend at the average SaaS company as folks continued to put significant investments into R&D during the pandemic. We’re left wondering when companies will start to take a close look at the productivity and performance of their R&D investments, which has long been the standard practice for sales and marketing investments.

It’s cliché to say that recessions make for even stronger companies. But the data shows that is indeed what happened. Given the recent sky-high private and public market valuations (Snowflake’s $70B+ market cap, Zoom’s $100B+ market cap), you could even argue that SaaS companies over-corrected in 1H 2020. The public companies on OpenView’s PLG Index are trading at a whopping 18x multiple of FY2020 expected revenue due to their continued strong growth rates in 2020. Meanwhile, companies that have experienced more moderate growth than anticipated (Slack, SAP) have seen their stock prices get slashed.

It would’ve been hard to predict these market dynamics back in March-April when everyone was focused on keeping their companies in business.

It’s time for SaaS companies to hit the gas again and reinvigorate growth in 2021. The trick is to maintain this new commitment to balanced, customer-centric growth rather than immediately swinging the pendulum back to the old “growth at all costs” way of scaling.

Here are our four best pieces of advice to get back to growth:

1. Become a process-driven GTM team

One of the most common reasons why growth stalls is because the go-to-market (GTM) motion was never designed to be repeatable. Without repeatability, it’s impossible to bring on new team members and see consistent results. We recommend installing process discipline early on in your growth—even as early as Series A when you might only have a handful of reps.

Start by defining your GTM KPIs and how you measure the effectiveness of your GTM team members. This will give you a baseline on which you can improve.

Your KPIs should be leading indicators of future performance. Some of our favorites include time to first deal, time to quota, win rate, average quota attainment QoQ / YoY, percentage of reps who hit 80% of their quota.

“Install process discipline early on in your growth—even as early as Series A when you might only have a handful of reps.”

These metrics should all get tracked at the individual, team and company level. You should also monitor them for each cohort of reps. Ideally you’d see incremental improvements in these metrics (or at least quickly spot and diagnose any worrying trends in your cohorts).

We also suggest picking apart and documenting the best processes from past deals that should become standard practice for the team going forward. This post-mortem analysis should include a 360-degree view of the buyer journey including your internal actions and the customer’s external actions. Make sure to review your entire funnel from lead generation to conversion and have an action plan for the areas with the greatest drop-off.

2. Systematically go after expansion revenue

The fastest growing SaaS companies are exceptional at expanding their existing customers. Expansion revenue accounts for a disproportionate share of their annual revenue, and it’s less costly to generate compared to converting an entirely new customer. Among the 11 companies that filed S-1s to go public in 2020, average net dollar retention (NDR) was a whopping 126%. (That data is open source and you can browse it here.)

The first step to capitalizing on this opportunity is to design a GTM org structure that not only ensures customers are successful, but also designates a clear owner of expansion for each high-potential account. This usually entails pairing up a CSM (primary KPIs: renewal, NPS, product adoption) with a revenue-minded team member (primary KPI: expansion revenue).

“The fastest growing SaaS companies are exceptional at expanding their existing customers. “

In a land-and-expand motion, that revenue-minded team member may be the AE who sold the deal, which creates an uninterrupted customer experience and incentivizes the AE to close new deals quickly rather than maximize the initial deal size. But there should be a clear cutoff when the AE hands off the account (e.g., 6 months, 12 months, 24 months) so that AEs remain focused on new customers.

It’s important to foster a similar level of commitment to operational execution post-sale as in the sales process itself. This entails investing in customer success operations to constantly monitor and improve CS processes, enable the post-sales team to work more effectively, and manage the systems and data that facilitates the team’s activities.

3. Bring back your pricing and packaging initiative

Many companies put their pricing initiatives on the back burner at the height of the pandemic, not wanting to upset existing customers or create friction in acquiring new ones. It’s time to bring these initiatives back.

Data consistently proves that pricing is the most powerful—and the most immediate—growth lever a SaaS company has at its disposal. In fact, two-in-five companies that altered pricing reported a 25% or higher increase in ARR as a result. The increase in ARR from a price increase directly leads to higher gross margin and a lower CAC payback, giving SaaS companies the opportunity to put even more resources back into sales and marketing.

“Two-in-five companies that altered pricing reported a 25% or higher increase in ARR as a result.”

Easy to say, hard to do. The average SaaS company doesn’t have a dedicated pricing strategist on staff and may not have anyone on their team with prior pricing experience. To help, we’ve compiled some priceless advice for folks taking on their first pricing initiative.

  • If it’s not broken, you should probably fix it. Don’t wait until pricing becomes a “hair on fire” problem before you tackle it.
  • Buddy up with the best sales reps. Those on the frontlines with customers have the best insights into how to evolve pricing. They can also make or break any changes you try to implement with customers.
  • Gather the data on pricing. Make sure you monitor and learn from pricing KPIs such as competitive win rate, % of deals lost due to pricing, and the impact of previous pricing changes on growth.
  • Don’t go it alone. Pricing is inherently cross-functional. Assemble a pricing steering committee that meets regularly (monthly is a good cadence to start) and includes representatives across marketing, product, finance, sales and operations.

4. Start to connect product and engineering investments with outcomes

How many of your highest paid team members are in sales? The fact is that a great (albeit expensive) sales rep is worth every penny and has an obvious ROI. Their compensation is directly linked to the revenue that they generate for the business.

In a product led growth (PLG) business, the product is front and center in how companies acquire, convert and expand users. Product managers and engineers become the equivalent of the great sales rep in a traditional SaaS business.

Yet research shows that most PMs don’t own the metrics that define the product’s success, let alone actual business outcomes. This is particularly troubling considering the massive amount that SaaS companies are spending on product and engineering.

We’re not advocating that companies flip the switch and start to treat their engineers like sales reps. That could lead teams to focus on short-term optimizations over major strategic bets. It also doesn’t reward basic product hygiene and paying down technical debt.

But there are steps you can take to move in the right direction, starting with defining and monitoring product KPIs. These should be standard practice and they help build accountability and shared language between Product and the rest of the organization. Example product KPIs include product-influenced revenue, product-influenced word of mouth / referral acquisition, time to value, and PQLs generated.

Getting up and running may require an investment in product analytics and/or a ProductOps function, i.e., the product equivalent of Salesforce and a RevOps function. These are foundational investments towards making evidence-based decisions and building great products at scale.

Get the full report

The 53-page 2020 Expansion SaaS Benchmarks report includes tons of more info, including data on:

🙂 Founder attitudes
📈 The adoption of product led growth
👩🏾‍ Progress on executive diversity
☕️ How founders really feel about their VCs

View the interactive page and download the full report here. Once you’ve done that, we’d love for you to join the conversation on LinkedIn.

Kyle Poyar
Kyle Poyar
VP, Market Strategy
OpenView

Kyle helps OpenView’s portfolio companies accelerate top-line growth through segmentation, value proposition, packaging & pricing, customer insights, channel partner programs, new market entry and go-to-market strategy.
Sean Fanning
Sean Fanning
Director of Corporate Development
OpenView

Sean supports corporate development for OpenView, helping our portfolio establish strategic relationships with potential alliance partners and acquirers, advising on and executing M&A and capital raise transactions, supporting portfolio exit planning activities, and communicating trends across M&A, PE, and public markets. He also supports various projects for OpenView’s Go-To-Market team. Prior to joining OpenView, Sean was Finance & Strategy Lead at Dispatch Technologies where he lead strategic growth initiatives, aided in financial and board reporting, and assisted with business development and fundraising activities. Sean began his career as an investment banker with Aeris Partners, focusing on sell-side M&A and capital raise advisory for high-growth software companies.
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