DEEP DIVE TIME: Openview benchmarks privately held SaaS businesses and has released the seventh consecutive edition of their 2023 SaaS Benchmarks Report. This report has a broad sample size and combines over 3,500 respondents. It can be downloaded here as a PDF. It’s an ever-evolving story from 2021 and 2022 into 2023 of what good looks like; backof the napkin summary here, but below are the top takeaways, which we always takehttps://media.giphy.com/media/aqSl7Dw5HTojK/giphy.gifto 11:
1. GROWTH:
In 2023, achieving growth has become more challenging, but there are still resilient areas amidst the overall negative trends. Some exceptional companies, or "outliers," have successfully achieved faster growth compared to the previous year BUT are concentrated among AI and vertical SaaS businesses.
2. ARR per FTE:
The now-popular efficiency metric! For many companies, Annual Recurring Revenue (ARR) per Full-Time Employee (FTE) has emerged as a primary performance indicator in 2023, signifying team productivity and doing more with less. Significant yearly increases in ARR per FTE have occurred from 2022 to 2023 across all bands of startups surveyed.
3. EMPLOYEE DISTRIBUTION:
What's the breakdown of all those FTEs in the above metric? Engineering was the largest department across the board - typically about 30% and the mix remains pretty consistent across ARR categories. Diversity and representation still disappoint.
4. CAC PAYBACK:
Another metric to watch and corollary to #2 - as it's an indicator of the business's health. Unfortunately, it's rising as the market becomes tougher.
5. RULE OF 40:
Back in 2021, OpenView observed that "investors have forgotten all about the Rule of 40." Last year's response: the Rule of 40 "back from the dead." This year, it's increasingly important but a very tough bar to achieve continually quarter on quarter.
6. PLG MATURITY - PIR:
Efficient product-led growth (as well as expansion and lean ops) is key for productivity. Despite initial lower profitability, PLG investments now aim for growth and efficiency by replacing manual work with product solutions, using "product-influenced revenue" as a key metric. PLG is a no-brainer for those AI Outliers mentioned above.
7. EXPANSION:
Net Dollar Retention is getting more challenging but never harder than new customer acquisition efforts. Top quartile companies have been hit hard, seeing NRR drop from 119% to 107%. But at scale, more growth is from Expansion vs New.
8. LEANOPS:
2023 was the year of LeanOps and more companies pushing for profitability. In the past hyper-growth mode mentality, companies were focused on meeting demand and, more often than not, ignoring operational efficiency. In 2024, LeanOps strategies should include minimizing back office costs, optimizing pricing and packaging, automating manual work and process optimization, and ensuring smarter growth with less resource expenditure. Hey - isn't that language what most of us in the B2B world use to sell to our customers? Time to practice what we preach!
9. PRICING:
FYI, last year, the median impact on NDR from changing pricing was a +14% increase among expansion-stage software companies. Message heard! This year's survey saw that 78% of respondents changed pricing and/or packaging (but you must put your time in). If international expansion is your thing, look at regional friction points: local payment methods (invoices, credit cards, PayPal, and region-specific methods), billing, and tax compliance.
10. CAPITAL:
Money is still being raised at the early stage. 30% of Seed-stage SaaS companies recently received funding in the past six months, with another 20% funded within the last year. However, only 14% of Series B or later companies secured funding in the past year, stretching out that capital raised during more favorable times.
11. RECAP:
Core SaaS Metrics are all summarized in this financial and Operating Metrics chart split by ARR groups and quartile. Print it out for your wall! Here is the chart showing the percentage change from last year to this year.
POD OF THE WEEK:
Too much to read and digest? Watch the Pod version of OpenView's SaaS Benchmarks Report with Kyle Poyar. I skipped the first 5 minutes for you as it's all Jibber Jabber.