SaaS Spend Categories as Percent of Revenue
What percent of revenue should a SaaS company spend on major expense categories?? In this post we show COGS, R&D, S&M, and G&A as a percent of revenue for the full years ended 2023 and 2022.? The data is for every SaaS company that has IPO’d since 2017.? ?
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Observations are below.?
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65 IPO’s since 2017.? The data set includes 62 companies in 2023 and 65 companies in 2022.? Three were acquired between 2023 and 2022.? If you see a “---“, that means the business was acquired sometime between 2017 and 2022, so no data is available.? Note that all the data below will discuss medians only, not averages.
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COGS.? In 2023 and 2022, COGS were 25% and 27% of revenue respectively.? These are big mature companies with scale, so the data in our view debunks the myth that COGS should be 20% of revenue for a SaaS company.? That’s just not realistic.?
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Sales & Marketing.? In 2023 and 2022, S&M was 40% and 46% of revenue respectively.? The percentage decline makes sense to us as 2023 was a year in which SaaS companies really emphasized efficiency over growth.?
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Research & Development.? In 2023 and 2022, R&D was 25% and 27% of revenue respectively.? R&D is a ‘black box’ whereby ROI is very hard to measure.? So in our view R&D spend shouldn’t be over 30% of revenue for any SaaS company that is beyond the Series A.
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General and Administrative.? G&A was 21% of revenue in 2023 and 23% in 2022.? Obviously this number is to be kept as low as possible at all times.?
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Improved profitability.? In 2023, SaaS operating losses were 15% of revenue versus 28% in 2022.? That’s a remarkable improvement, however it is coming at the expense of growth which can be very dangerous for valuation.???
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While these SaaS companies are large and mature, the data is a great guide to where Series A+ SaaS companies should be on their spend as a percent of revenue.?
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Thank you for your readership.? See more blogs and SaaS data at blossomstreetventures.com .? Email the author at [email protected] .