The return on SaaS S&M Spend

The return on S&M spend in SaaS has gotten worse over time.? We can see this decline by comparing the efficiency of S&M spend in 2023 to that at the time of IPO for every SaaS company that went public since October 2017.? Below is the data.?

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First let’s start with the data from 2023.? Note if you see a “---“, that means the business was acquired sometime between 2017 and 2022, so no data is available.? In total 62 companies are still public.

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As the data shows, on median the typical SaaS company in the data set is currently generating $0.42 of new revenue for every dollar of S&M spend.? On average the figure is $0.42.? Only 11 of the companies generate $1 or more.? The math is simply 2023 revenue minus 2022 revenue all divided by S&M spend in 2023.?

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So what was the data at the time of IPO? ?The data below shows on median the typical SaaS company was generating $0.65 of new revenue for every dollar of S&M spend at the time of IPO.? On average the figure was even larger at $0.91.

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The difference between a median of $0.42 today and $0.65 at the time of IPO for the data set is staggering.? SaaS companies have become 35% less efficient at generating new revenue with their S&M spend.?? Why is this happening?

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-Post-COVID Hangover. Many businesses ramped up spending during the pandemic, and now we’re seeing the fallout.

-Market Saturation. The SaaS space may be over-saturated, with limited room for growth in certain markets.

-Economic Uncertainty Fears of a recession at the end of 2022 likely led to more conservative spending for software in 2023.

-Advertising Challenges. Apple’s privacy changes, the decline of third-party cookies, and rising digital ad costs have made online marketing less effective.

-Changing Sales Cycle: Companies are tightening belts, making it harder to justify aggressive S&M spend.? It has elongated sales processes, scrutiny is up, there are more constituents in the decision process, and overall software is just harder to sell.

-AI is eating budget.? Budget that would otherwise go to software spend is instead going to AI infrastructure and models.?

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Overall, it’s a sobering picture and in total it means we all need to be more patient with the return on our S&M spend.? Good luck to us all.?

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Thank you for your readership.? See more blogs and SaaS data at blossomstreetventures.com .? Email the author at [email protected] .