Spending Benchmarks for Private B2B SaaS Companies
October 29, 2020
SaaS Capital conducts a survey of private, B2B SaaS company metrics in the first quarter of each year. Our 9th annual survey, completed in February, saw over 1,400 SaaS companies respond. This post summarizes benchmarking data around the topic of spending.
How Much Do SaaS Companies Spend on Customer Support or Marketing?
In day-to-day SaaS company operations, questions like the above are common, so we asked survey takers:
What percentage of revenue is currently spent on the following? (Percentages should total less than 100 if your company is profitable, and more than 100 if it is not.)
Here are the top-line results expressed as the median percent of annual recurring revenue (ARR) for all companies in the survey:
- Cost of Goods Sold (excluding Customer Support/Success) = 15%
- Customer Support/Success = 10%
- Selling Costs = 20%
- Marketing Costs (including Product Management) = 10%
- Research and Development = 25%
- General and Administrative = 17%
So, in general, a SaaS company spends 10% of its annual revenue on both customer support/success and marketing. This might be interesting to know, but to better benchmark your specific company, it’s important to look at a subset of companies that more closely resemble your own.
SaaS Spending by Company Funding
As discussed in 2020 Growth Benchmarks for Private SaaS Companies, equity-backed funding is correlated with growth. It may not be a causal relationship, but there is a relationship. On median, bootstrapped companies report growing at 28% per year, whereas companies that have raised venture capital were growing at 55% annually. The chart below shows median spend benchmarks, as a percent of ARR, for equity-backed companies vs. bootstrapped companies.
The obvious takeaway is that bootstrapped companies are spending less (and are profitable), while equity-backed companies are operating at a loss to support a goal such as growth. The most dramatic differences include equity-backed companies spending approximately 45% more on sales, marketing, and R & D while spending 67% more on general and administrative costs.
The increased spending by equity-backed companies on sales, marketing, and R&D is somewhat expected. The dramatic difference in general and administrative costs is noteworthy. One possible explanation for why equity-backed companies spend more is the need for a robust administrative and finance team to support reporting requirements to investors, including regular board meetings and audits.
Drilling down on growth, we compare companies growing above the median growth vs. those growing below the median.
The difference between higher growth bootstrapped companies and lower growth bootstrapped companies is subtle. Higher growth bootstrapped companies spend approximately 20% less on CoGS and general and administrative costs while spending 25% more on marketing.
The difference between higher growth equity-backed companies and lower growth equity-backed companies is more pronounced. Higher growth equity-backed companies spend 50% more on sales and twice as much on marketing vs. lower growth equity-backed companies. And, like faster-growing bootstrapped companies, the higher growth equity-backed companies spend 20% less on CoGS.
The reduced spend on CoGS is significant as it represents inherent and intrinsic “free” growth from higher gross margins. In other words, higher gross margin companies naturally get “free” higher growth, or at least have “extra” cents per every dollar of revenue to spend elsewhere (i.e., sales, marketing, or R&D).
SaaS Spending by ARR Levels
For benchmarking purposes, another metric by which to compare your business to your peers is by revenue scale. The table below breaks spending levels down by company size and funding source.
*Excluding customer support and customer success
This table shows that a typical bootstrapped B2B company with $3 Million to $6 Million in ARR spends the following as a percent of ARR:
- Cost of Goods Sold (excl. Support/Success) = 10%
- Customer Support/Success = 10%
- Selling Costs = 12%
- Marketing Costs (incl. Product Management) = 10%
- Research and Development = 23%
- General and Administrative = 14%
Meanwhile, an equity-backed B2B company with $3 Million to $6 Million in ARR spend:
- Cost of Goods Sold (excl. Support/Success) = 11%
- Customer Support/Success = 11%
- Selling Costs = 25%
- Marketing Costs (incl. Product Management) = 16%
- Research and Development = 34%
- General and Administrative = 25%
Finally, posted below are clickable thumbnails to see expanded charts that show spending levels for each revenue level broken.
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