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SAAS SPENDING



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HOW DO TOP-PERFORMING SAAS COMPANIES SPEND THEIR
MONEY?
How SaaS companies spend their money varies based on their specific product, size, and market. However, a detailed
analysis from our survey of over 700 private SaaS businesses reveals noteworthy patterns among top-performing
businesses that all SaaS company leaders should be cognizant of.
We used our survey data to compare the spending
patterns of top-performing growth+profitability1
companies to the spending patterns of bottom-
performing businesses. To the right is a graph showing
the difference in spending by category between the top
quartile companies and the bottom quartile companies.
Top-performing SaaS companies are finding ways to
spend significantly less on direct cost of goods sold
(hosting, support, consulting, third party software),
and are also spending less on overhead relative to
their peers. They are reinvesting those dollars into
the areas that more directly touch the customer and
drive revenue: sales, marketing, customer success, and
product. Many times, the product itself dictates CoGS
and is difficult to change. That said, those businesses
that have lower direct costs appear to be able to re-
direct those dollars into efficient growth.
Breaking the top and bottom performers down based on
the size of their revenue (ARR) reveals additional insights.
SaaS businesses below $10 million in ARR (the bottom
two groups) mirrored the general trends we observed for
all SaaS businesses regardless of size – top performers
have lower overhead and CoGS and spend more on sales
and marketing.
Looking across all revenue sizes yields additional
insights:
1. As top performers scale, they invest more and more
in customer success relative to their less successful
peers. These companies appear to recognize the
increasing importance of retention as their business
matures and the percent of revenue coming from existing customers grows.
2. Top-performing SaaS businesses above $10 million in revenue are achieving economies of scale in sales and marketing
that others are not.
3. Low G&A is a characteristic of all top-performing SaaS businesses regardless of size.
4.
Investing heavily in marketing is a characteristic of top-performing SaaS businesses below $10 million in revenue.
RESEARCH BRIEF 13: SAAS SPENDING
-30%
-20%
-10%
0%
10%
20%
G&A
R&D
Marketing
Sales
Success
CoGS
Top vs. Bottom Quartile Relative Spend by Function
Spend Differential by Top Performers vs. Bottom Performers
-50%
-35%
-20%
-5%
10%
25%
40%
$1 - $5 mil
$5 - $10 mil
> $10 mil
ARR of BusinessG&A
R&D
Marketing
Sales
Success
CoGS
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SAAS SPENDING



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ABOUT SAAS CAPITAL

SaaS Capital is the leading provider of long-term Committed Credit Facilities to SaaS
companies. Focusing exclusively on the SaaS business model, SaaS Capital delivers faster
decisions, more capital, and longer commitments. SaaS businesses have used SaaS Capital’s
Committed Credit Facilities, instead of equity, to finance growth and create hundreds of
millions of dollars in enterprise value without sacrificing significant ownership or control.
Also, through its partnership with DH Capital, a boutique investment banking advisory firm,
SaaS Capital can assist with M&A and capital raising services. SaaS Capital has offices in
Cincinnati, New York, and Seattle.
Visit www.saas-capital.com to learn more.
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1225 HAYWARD AVENUE | CINCINNATI, OH 45208
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
IWWW.SAAS-CAPITAL.COM
TODD GARDNER | FOUNDER AND MANAGING DIRECTOR | TGARDNER@SAAS-CAPITAL.COM | 513-368-4814
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529
Generally speaking, these spending trends are consistent with what we at SaaS Capital have observed over the years.
Higher growth+profitability businesses have generally pursued a “purer” SaaS business model with higher gross margins
that has allowed them to scale very efficiently. Also, top performers, almost without exception, have competent and well-
funded marketing organizations.
Stepping away from the comparative aspects of the analysis, below is a simple table of the spending allocation for top
quartile SaaS businesses in each size category.
Two takeaways are evident here. While top-performing SaaS companies spend less on CoGS relative to their peers, all SaaS
businesses tend to spend more on CoGS as they scale. Also, top-performing businesses achieve significant economies of
scale in R&D as revenue grows.
SaaS Capital does not view these benchmarks to be overly prescriptive. Companies vary widely in their product, sales, and
support needs and there is no “right way” to invest. That said, the data here can be used to challenge long-established
spending patterns of existing businesses. Managers should be able to defend significant over or under investment in any
specific functional area, and they should recognize the focus of their investments must change as a business scales.
$1 - $5
Million
$5 - $10
Million
Above $10
Million
CoGS (excluding customer success)
10%
16%
17%
Customer Success
10%
11%
14%
Sales
22%
21%
18%
Marketing
11%
11%
11%
R&D
31%
28%
22%
G&A
15%
14%
16%
Total Costs
100%
100%
100%
Note:
1 Growth plus profitability is defined as the annual growth rate in annualized recurring revenue (ARR) plus the EBIT percentage gain or loss. For example, a business
growing at 40% while losing 10% is a 30% growth plus profitability company. This is sometimes referred to as “The Rule of 40.”