Updated: Oct 16, 2019
After 10+ years of researching and developing a proprietary database of SaaS industry benchmarks, the answer is it really depends on what type of metrics you are trying to find.
There are several good sources of SaaS performance metrics, but no one single source meets all needs. I'll expand on the different categories below.
For more traditional Enterprise Valuation Metrics such as Customer Acquisition Cost (CAC), CAC Ratio, CAC Payback Period, Gross Retention, Net Retention, Logo Retention, Growth Rates and Average Revenue Per User (ARPU) there are several good “survey” based approaches and reports.
KeyBanc Capital Markets (formerly Pacific Crest Securities), SaaS Capital, and OpenView Advisors conduct annual surveys and continue to increase the number of participating companies. These annual surveys only have 400-1,000 companies participate, and far too many of the participating companies are in the less than $5M ARR category,
Bessemer Venture Partners provides a Public SaaS Company Financial Performance Benchmarks within their Emerging Cloud Index. This also shows more traditional public company valuation metrics such as market cap as measured by revenue multiples.
For more detailed, Operating Performance Metrics and Key Performance Indicator Benchmarks, there are a few Advisory Service companies, such as TOPO (recently purchased by Gartner) and SiriusDecisions that have created SaaS Industry Benchmarking research and reports.
This research is provided as a secondary offering to their core consulting business, and as a value add to Advisory Service customers. SiriusDecisions offers annual subscription access to their Benchmark Portal, but its cost is beyond the majority of SaaS companies cost/value threshold.
OPEXEngine takes a more “Data Centric” approach to collecting and publishing benchmark data, by offering paid access to their proprietary data through their BenchmarkEngine.
ProfitWell, a pricing advisory service provider and BareMetrics, a SaaS and Subscription analytics solution have created an API centric data capture process with many of the leading Subscription Management platform vendors such as Stripe, Recurly, Braintree and Chargebee. This approach provides granular insights into subscription centric metrics such as renewal rates, gross/net retention and average ACV.
Nathan Latka, founder of GetLatka publishes a SaaS industry podcast and magazine, has developed a robust SaaS Financial Performance Centric database by capturing data shared in over 3,000 interviews with SaaS CEO’s. These CEO's share company specific metrics including ARR growth rates, Average Contract Value, Average Revenue per Unit (ARPU), Net/Gross Retention Rates and CAC/CAC Payback period.
Where do I find operational KPI's and benchmarks?
Unfortunately, SaaS Operating Benchmarks are harder to find than SaaS Enterprise Valuation Metrics, and when they are available they primarily focus on function by function metrics. Taking this departmental approach leads to lack of alignment and shared goals across all the functions that impact customer lifecycle efficacy. They also neglect to factor in the unique attributes of a company, such as size, distribution model and target buyer(s).
Several consulting firms and SaaS analytics platform providers use survey based research and reports as an educational, awareness building and demand generation vehicle. These survey’s most often cover compensation information and/or performance metrics specific to a function versus a process like Customer Acquisition, Expansion or Retention. Functions and topics covered include: 1) Sales Development, 2) Field Sales and/or Inside Sales; 3) VP Sales Compensation; 4) AE Compensation; 5) SDR Compensation; 6) Customer Success Performance Metrics, 7) Marketing Funnel Performance Metrics.
The Bridge Group, an inside sales consulting firm is an good example of a company that provides a very good “give to get survey and report” based offering. Having the longest tenure of Inside Sales and Field Sales research, I find their compensation and organization structure oriented reports extremely valuable and have been a consumer of their research for many years.
How accurate and statistically valid are these Benchmarks?
That is a loaded question, and often comes with hidden meaning and/or far too many experiences with board members, investors, CEO’s and CFO’s or other operating executives providing historical or even anecdotal metrics/KPI’s that may or not be relevant to your existing environment.
Having industry benchmarks and KPI’s that can be filtered by variables that represent your own company attributes, including but not limited to: 1) ARR/Revenue Size; 2) Average Annual Contract Value; 3) Executive/Department Buyer; 4) Growth Rates; 5) App type - vertical/horizontal, function/infrastructure; 6) Capital Raised; 7) Target Industry are less valuable than being able to compare your own KPI's to external benchmarks using a “Like Peer” Cohort approach.
Equally important to using a “Like Peer” cohort approach, is the integrity of the data being used, especially when it comes to HOW the Enterprise Value Metrics are being calculated. This topic is a thesis in and of itself, but suffice it to say I have seen at least 5-10 different formula’s being used for basic SaaS Enterprise Valuation Metric such as CAC (New Business), CAC (New + Expansion), Gross Retention, Net Retention, Gross Margin, etc.
Variables not being used consistently to calculate Enterprise Valuation Metrics include: 1) where do Customer Success costs go – Sales or COGS; 2) How does Gross Margin impact CAC payback period; 3) what time period(s) to use for Retention Rates; 4) How is LTV Calculated; 5) How do marketing costs factor into Net New versus expansion CAC; and oh so many more examples which for the “purist” can taint the credibility of the benchmarks.
Statistical validity should not be a primary concern a SaaS company CEO/CFO should have when it comes to available benchmark information in the public domain. Today, most SaaS companies should first strive to understand what KPI's they currently capture, what it takes to instrument capturing the required inputs and how they are calculating Enterprise Valuation Metrics. Then they can decide which metrics matter AND then compare them to “Like Peer” Group cohorts using external benchmarks.
An example of using SaaS benchmarks incorrectly would be to compare the KPI's of a Self Service – Product Led Customer Acquisition/Expansion based business selling to the SMB market in finance to your Field/Inside Sales Customer Acquisition based business selling to the Enterprise market and the Chief Marketing Officer is meaningless, and creates noise and wasted energy.
Another issue to be aware is how the provider smooths the data to ensure outliers, especially in a survey based research model, are not materially biasing the benchmarks. Most published research on SaaS metrics is only providing mean/median/average data and does not allow operating executives to understand more granular insights such as which quartile or even percentile they fall in.
My revenue operations and financial planning analysts are too busy on other priorities, how do I benchmark my company performance against similar companies to mine without spend too much time and money?
Partnering with former senior operating executives, who have a wide variety of experiences and access to industry benchmarks and possess applicable functional experience to provide strategic and tactical recommendations on how to capture, calculate and effectively leverage industry benchmarks is a good starting point.
Being able to ensure the current KPI's being collected are both relevant to the business challenge being addressed AND are captured and calculated correctly is a critical first step.
Having and reporting against Key Performance Indicators, Metrics and Benchmarks should NEVER be the ultimate goal. Being able to leverage this data to identify opportunities for improvement and then quickly turn those insights into action is critical to translate internal KPI capture and Industry Benchmarks into increased Revenue Performance.