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Curated SaaS and tech insight from around the web repackaged for people to put to good use
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1. SaaS METRIC OF THE WEEK: Developer productivity - There are two primary frameworks for measuring developer productivity: DORA (with a free poster!) or the GitLab source. Five metrics for a four-letter acronym to measure DevOps performance and SPACE - a more holistic framework for productivity. And also as a little bonus, how to measure DevEx (Developer Experience)
2. MARKETING: The main goal of any marketing campaign is value-based. I'm trying to convert people who consume some of our marketing efforts into happy customers. Knowing what works can be hard to impossible: measuring ROI, attributing revenue, measuring brand awareness, overall campaign success, etc. So, if you can relate, bookmark this marketing attribution dashboard. It covers all the attribution model types and metrics, best practices, tools de jour, and more. 3. COMMISSIONS: How to pay your different sales channels? Commission levels of sales are pretty stable across sale types at about 10-14%. Commissions on renewals is only 3% and upsell is 9% - however about 50% of the time this is not paid at all. (Bringing up another subject on how much revenue a Customer Service Manager can manage). 4. PRODUCT MARKET FIT: A long-running Growthism in the Startup world is that getting to $1m of ARR is a strong sign of Product Market Fit (PMF). Kaitlyn Henry from Openview runs contrary to this, stating that there's no specific revenue indicator that defines PMF details other signals of PMF available beyond a $$ amount and gut feel. Read more about all those signals here. This sits well with Brian Balfour's work, who wrote a fantastic article on the subject that is now almost ten years old and still incredibly relevant for figuring out what stage(s) you may be at and we have a Product Market Fit Report to help founders benchmark their progress against others on the same path: Only 56% believe they have product-market fit and 29% believe they will do this within the first 12 months of founding. 5. GO TO MARKET: Go-to-market motions can be quite specific, and your GTM motions can impact your marketing strategy and your org chart. Robert Kaminski has distilled GTM motions into five types in this article based on the number of use cases; the summary diagram at the bottom is excellent. 6. MARKET CONDITIONS: According to Gartner, Worldwide IT spending is forecasted to pass $5 trillion in 2024, up 6.8% from last year, but re-forecast down from the previous quarter's forecast of 8% growth. Interestingly, the Services side will become the largest segment for the first time - transformation projects are in full gear. But we care about software spend! Which is carrying the team at 12.7% growth and is flat from 2023. 7. EQUITY: This bookmarkable series from Femstreet covers the startup founder's guide to equity. Don't worry about Part 1 - it's a very basic primer. The good stuff starts in Part 2 and covers the different types of equity at a startup (founder, investor, vesting, liquidation, pro-rata, etc, etc), and Part 3 covers cap tables and things you can do if they are messy. 8. VENTURE-STRAPPED: I googled this term already, and it's unique! It's my term for your tech dictionaries for a hybrid startup that is a mash-up of the old debate of bootstrapped vs. VC financing and applies to startups that raise only once. Which anecdotally is a more common practice in these new market conditions (and includes Klaviyo and Zapier). Jason Lemkin notes this new one-and-done third way. 9. R&D: Research and development are significant components of any competent software startup, and often, public R&D incentives (via grants, tax breaks, or deductions) align well during difficult early and growth phases. But in the US (the world's largest software buyer and seller market), there was a Tax change way back in 2017's Tax Cuts and Jobs Act that is impacting many startups and Tech Companies tax bills, thanks to a provision that changes how R&D costs are deducted - a percentage of layoffs we have recently seen and perhaps about to be seen (along with the rapid cooling in the tech hiring market) may be attributable to this. AXIO dives deep into the problem in this article as I do in the Top 10 Expanded. 10. CASE STUDY: MISTAKES: I saw this original presentation from Anand Sanwal of CB Insights way back at SaaStr back in 2017 - but it's memorable because of its Silicon Valley (the TV Show) like accuracy of things not to do: 100 things NOT to do when building a SaaS company. POD OF THE WEEK: PLG Bonus from the GTM post at #5 above Mark Roberge at Stage 2 Capital gives some PLG context on Go-To-Market Strategies. The slide deck from the presentation can be found here. 1. SaaS METRIC OF THE WEEK: (Lead Velocity Rate): LVR is the lead growth rate of qualified leads per month. This metric clearly explains a business's future revenue and growth. Setting a goal to increase LVR by 25%, for example, will also enable you to equally increase revenue generated for your business.
2. FOUNDER-LED SALES: Founder-led sales is a well-documented part of the startup journey, especially in the early days, and often with very inexperienced or more technical founders. Here is a great article (with Engineering-based analogies) on how Founders can mentally re-frame and execute an excellent sales program. 3. PROFESSIONAL SERVICES: It's a weird open secret that many B2B SaaS businesses generate significant revenue from implementation and deployment projects, often captured as revenue from Professional Services. So check out Dave Kellogg's post called The Professional Services Paradox, where there are times when only a Startup can deliver the services needed to execute a transformation strategy. BTW - on average, Service Revenue as a percentage of Total Revenue caps out at 11% with enterprise-focused businesses, but even at the lower end of town, it's still 5% of revenue with SMB-focused businesses. Fun fact: more professional services = less churn. 4. VENTURE: 2023 was tough not only for startups but also for VCs. We've lost OpenView (some of the best reports and benchmarks out there) as well as Countdown Capital. The recent Global Private Market Fundraising Report from PitchBook shows that capital last year is tracking to finish from flat to approximately 5% higher, but Megafunds ($5 billion and up) account for about half of all capital raised. Pressure is on first-time fund managers as LPs favor larger, established funds. Andreessen Horowitz (one of the megafunds) was the most active VC last year - 79 VC deals. 5. BENCHMARKS: Last week's newsletter was just a week too early, as ChartMogul launched "ChartMogul Benchmarks" on their platform on Friday. It's designed to give operators on-demand access and an up-to-date snapshot of what good growth looks like for SaaS companies. It requires an account - but it's free! 6. GROWTH: 2023 was the LeanOps revolution as outlined in #1, #2, #3, #4, #6, #8, #9, and #10 in last week's newsletter - we're all part of the newer capital-efficient world all startups live in (not just the bootstrapped ones). So check out the new 2024 State of Customer Growth Survey Report from Catalyst, which shows that while new business growth and retention are essential, customer expansion is the key to very capital-efficient revenue growth (startups of $1M+ ARR, have a third of new revenue from expansion). It also outlines the risks of overselling, poor implementation, and lack of account relationships, which can hold back that growth. 7. DEVS and AI: According to the StackOverflow 2023 Developer Survey, Stackoverflow's main contribution to developers looks to be under threat: About half of developers are using Github's Copilot, and over 80% are using ChatGPT. Other good nuggets: 1/3 still identify as Full Stack, and Developers primarily learn online (over 80%). JavaScript remains the most commonly used language, and AWS is the most widely used cloud platform (by about double). 8. CYBER: Cyberthreats are going nowhere fast in 2024; as threat surfaces increase in size and complexity, they will probably get worse. So bookmark this new Incident Response Team Guide from Microsoft to add to your intranet, share with your incident team, or roll up into your Incident response strategy. 9. MOBILE: The newest State of Mobile report is out from data.ai, which reviews last year's mobile market and looks at Trends for 2024. Here are some highlights: We're up to an average of 5 hours per day on our phones - up 6% from last year; most of that time is on social (where TikTok rules and X is on the decline), even if people are not posting as many updates - everyone is all up in everyone else's DMs instead. In-app spending is on the rise, - $60 billion in 2023 (excluding games) 10. CASE STUDY: Expanding on number 2 above, here is a list of 10 Founder-Led Sales lessons learned with a recent roundtable from Race Capital. POD OF THE WEEK: Sam Schillace, deputy CTO and corporate VP at Microsoft, was also the architect behind Google Docs/workspace and, in this podcast, discusses how to be innovative, the evolution of Google Docs, embracing failure, and the importance of convenience in Product Design. Happy New Year, and welcome to the Benchmark Holiday special! This is a compilation of helpful benchmark data reported from across the web last year for you to put to good use.
1. ARR per FTE: Pulling this from Openview's 2023 SaaS Benchmarks Report, it's the newly 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. This metric ranges significantly based on stage/revenue ($42k to 250k median based on ARR). 2. EXPANSION: Acquiring customers is not enough for a SaaS company's sustained long-term success, and expansion strategies are pragmatic and capital-efficient growth practices that any good SaaS company needs but are getting harder to come by. Top quartile companies have been hit hard, seeing NRR drop from 119% to 107%. But at scale, more growth is from Expansion vs New. The proportion of ARR gained from Expansion has increased from 28.8% in 2020 to 32.3%. In comparison, the proportion of ARR gained from the new business has fallen from 62.0% to 57.9%. 3. CHURN: 40% of SaaS businesses with ARR in the $15-30m range have negative Churn, and, on average, startups with ARPA over $1k have negative Churn. The higher the ARPA, the lower the monthly net MRR churn rate. This is because of lower gross Churn and higher expansion revenue at higher ARPAs. 4. RETENTION: To complement #2 and #3 above, retention is deeply related to Churn (obviously) but also to Expansion. Chartmogul, in their SaaS Growth Trends in 2023 report, notes that retention strategies are now being viewed as growth strategies. And last year, Companies with best-in-class retention grew at least 1.8x faster than their peers. Check out this other great ChartMogul article that outlines how to calculate, benchmark, and track retention. 5. PRODUT LED GROWTH: As mentioned in #3 above (and from me from time to time in this newsletter), Product Led Growth (PLG) businesses lead the pack when it comes to Expansion. PLG companies also deserve their own benchmark reports - so I got you covered with this one where you can benchmark 1000+ PLG companies (it was only 450 companies a year ago). A few factoids: Organic leads are still leading the pack but have decreased Year on Year from 2022 (39% of all traffic) to 2023 (32% of all traffic) - most of that shift has been absorbed by old fashioned Sales, Paid Marketing, and Partners. When it comes to trials, Expansion is harder to come by, and NDR is falling 6. CAC PAYBACK: The 'payback' period is the nuance of why we measure CAC. How long until we break even? Benchmark-wise, the negative trough is way longer than you think, so take a seat! New B2B customers, on average, take 2 years and 2 months to become profitable. This highlights a deepening dependency on access to capital to fund a SaaS company's growth through these SaaS Cash Flow Troughs. 7. GROWTH: Good news - growth is not deteriorating. The bad news is that it's not improving, especially at the early stages. There are signs of future positivity as best-in-class startup growth is accelerating and new business activity is picking up. 8. MARKETING AND SALES: Last year KeyBanc noted marketing spend dropped 31%. This year, SaaS Capital benchmarks the median percent of annual recurring revenue spent on marketing, which remains unchanged at 10%. The median percent of annual recurring revenue spent on selling costs is 15%, down 6% from last year. 9. PRICING: Last year, the median impact on NDR from changing pricing was a +14% increase among expansion-stage software companies. Message heard! As this year's survey showed, 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. SPEND: Capital Efficiency is back in Vogue! According to Bessemer Venture Partners, here are the benchmarks for B2B SaaS to measure your payback against (full report here). Across all companies, Engineering is consistently the largest department, Customer Success and Product at about 10% and Marketing at only 7%. This slide also has median headcount by stage - a great metric to track. POD OF THE WEEK: From SaaS Talk, OpenView Partners 2023 SaaS Benchmark Report Analysis. |
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