Four key insights for SaaS and CS leaders from the 2024 B2B SaaS Benchmarking Survey

The 2024 B2B SaaS Benchmarking Survey by SaaS Capital is the most comprehensive and up-to-date source of its kind for SaaS and customer success leaders who want to know where they stand compared to peers and competitors.

Last month, ChurnZero CEO You Mon Tsang and SaaS Capital managing director Rob Belcher dug into the findings of the latest survey—now in its 13th year—to unpack its data and what it means for CS teams. You can watch the webinar in full here, or scroll on to discover four essential insights from this year’s survey.

This year, the SaaS industry faces a unique set of trends: the acceleration of AI, heightened emphasis on efficiency, and the back and forth (and back again) of remote work dynamics, all set against the backdrop of a cautiously optimistic recovery. In our webinar, You Mon and Rob discussed the B2B SaaS market’s current state, including the impact of tech advancements and changes in work culture, and what it means for SaaS leaders.

Takeaway 1: Equity is hard to get right now, and very few people are doing it.

A prominent theme that emerged is that equity is becoming increasingly hard to obtain, with few companies actively pursuing it. This shift likely reflects tighter capital markets, and perhaps a more cautious approach from investors, due to economic uncertainties or market saturation. 

Takeaway 2: Increase your NRR to increase your growth rate faster.

Good news: Gross Revenue Retention (GRR) among surveyed SaaS companies remains robust at 90%, illustrating the effectiveness of customer retention strategies and the stability of the SaaS business model. Similarly, Net Revenue Retention (NRR) was reported at around 100%, underscoring the ability of SaaS companies to effectively grow revenue from existing customers.  Rob explained that there is a direct correlation between improvements in NRR and accelerated growth rates, describing this relationship as “parabolic growth.”  

Takeaway 3: Start fixing your GRR as you grow older.

The data shows a natural decline in GRR as SaaS companies mature due to increased competition, market saturation, or product obsolescence, highlighting the broad industry reality that sustaining customer loyalty and revenue becomes progressively more difficult. In turn, this necessitates more focus on customer retention strategies for long-term business sustainability. 

Takeaway 4: Profitability is having a dramatic impact on valuations.

Historically, there’s a negative correlation between profitability and valuation, in which high profitability in a rapidly growing company might suggest that the company is reaching market saturation, or lacks opportunities to reinvest earnings for future growth. Recent shifts in market dynamics, however, such as rising interest rates and inflation, have led investors to favor financial stability and profitability over “growth at all costs”.  Companies that can balance growth with solid profitability are now seen as more attractive investments. 

Our webinar ended with just minutes to spare for the audience Q&A, in which You Mon and Rob answered three attendee questions on SaaS lending criteria and the right metrics to focus on for growth and valuation.  

Q: As a lender, how do you view and measure growth & profitability in making your lending decisions today?  

RB: I would say that our underwriting hasn’t changed much. We’re a lender and we’re looking at how we can get paid back. We’re not looking at how big a company can get and how, what the exit could be, and who the potential acquirer could be. We’re just looking at whether it’s a stable company.  

Like I said earlier, we’re focused on GRR more than NRR now—that’s a change—but growth versus profitability are still about the same. 

So again, we’re a lender. We don’t require you to be growing at a hundred percent a year; our minimum is about 10% growth rate, and profitability is simply driven by runway.  

A quick metric for you, if anybody’s interested: we lend you usually around 4x to 8x monthly revenue, and we like to see you have at least a year’s worth of runway. So, if we’re lending you 6x MRR (monthly recurring revenue), if your burn is more than 50% of your revenue, you don’t have a year’s worth of runway.  

So, our general rule of thumb is if burn is 50% or less of revenue, we can probably make it work. If it’s higher than that, it’s probably going to need some other lender or equity. 

Q: We sell to SMBs through a reseller. We don’t feel like we have control of GRR because the reseller is managing this part of our business. Is GRR still an effective measurement for us?   

YMT: Yes, absolutely. It’s still a big part of your business. You’re clearly investing in it. Maybe the answer for you is to segment your different types of customers depending on how big they are, or how you got them—in this case, through a reseller—and measure those segments differently, against themselves, and then focus on GRR and NRR improvement.  

It may be bad, because you don’t have direct control, or don’t feel like you have control. But it doesn’t mean you can’t work with your partners to make it better.  

Q: We are moving towards an IPO. We’re operating under the concept of rule of 60, with growth accounting for 20% and margins for 40%. Should we be growing more to make the best valuation?  

YMT: Let me quickly explain the rule of 40. You take your growth and your profit margin, and add those percentages. Sometimes they can be positive and negative numbers, but let’s say you’re growing 20 percent and you’re making a 20 percent profit margin. 20 plus 20 equals 40, and anything above 40 is considered a very healthy company.  

You can do it either way: you can have huge growth and burn a lot of money to be at 40, or you can be making a lot of money—40% EBITDA—and growing zero. But this person is trying for rule of 60, with 20% growth and 40% margins. Rob: should they be making less money, or growing more, to get a better valuation?  

RB: So, a couple points here. One: there was recently some talk about the “rule of X” and changing the rule of 40 to be a little more malleable and relevant to the scale of a business. 

A private equity investor pointed out that the metric applies more to large companies that were more stable, more profitable, and it wasn’t necessarily as good a metric to apply to a fast-growing, scaling company.  So, I think the “rule of 60” is fascinating. I applaud this person for looking at something a little differently and trying to be best-of-breed.  

To address the actual question of what your metrics should be… We have some growth rate benchmarks and spending benchmarks coming soon, so you’ll be able to compare yourself to companies of similar size. 

It really depends on what size you are. For example, 20% growth for a $2m company isn’t really impressive, but 20% growth and profitable for a $100m company is great.  

My last comment regarding IPOs is that equity markets are pretty shut right now. I think there’s probably a tsunami of equity deals to be had at some point—I don’t know what the trigger will be—but at some point IPOs are going to start and it’s going to be not a trickle-down but a flood, all the way down, of the equity markets opening back up. 

Good luck on IPOing! We’ll put it in the SCI when you’re public; we’ll add you to the index. 

To find out more about the survey, and see more research and benchmarking data, visit SaaS Capital here.