R&D is usually the largest cost line in a SaaS business, and in 2026 it is under more scrutiny than at any point in the last four years. The median has fallen to 27% of revenue, down from 35%.
This article covers what R&D spend looks like now:
- What is normal in 2026, by company size and growth rate
- How much is going into AI
- Why measuring R&D spend matters
- How the picture got here, and what the historical data still tells you
The aim is enough data to judge whether your own number is healthy, in a few minutes of reading.
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- 27% of revenue is the median R&D spend. A quarter of companies spend 10% or less, a quarter spend 40% or more.
- It fell eight points in a year, down from 35% — the sharpest single-year drop in four years.
- 10% of the R&D budget now goes to AI at the median, and over 30% in the top quartile. That line did not exist two years ago.
- Size does not move it in a straight line. 32% below $20M ARR, 22% at $20–50M, then back up to 26% at $50–100M.
Why is measuring R&D spend important?
In the early days, spend on R&D is the most material cost for SaaS companies outpacing all other items. Understanding if your spend on R&D is consistent with the norm is a useful gauge of capability.
As a business starts to scale, having achieved a solid product market fit, R&D spend is a useful indicator with which to stimulate internal debate as to whether or not momentum will be lost further down the line due to lack of further innovation investment.
What is normal R&D spend in 2026?
The median SaaS company spent 27% of revenue on R&D in the most recent benchmarking year, down from 35% the year before. That is the largest single-year fall in four years.
The spread is wide. A quarter of companies spend 10% or less; a quarter spend 40% or more. Both can be correct, depending on how fast you are growing and how big you are.
R&D spend by company size
Median R&D spend as a percentage of revenue, by annual recurring revenue band.
R&D spend by growth rate
| Annual revenue growth | R&D as % of revenue |
|---|---|
| Over 50% | 33% |
| 31–50% | 30% |
| 11–20% | 24% |
| Under 10% | ~26% |
Faster growth costs roughly seven points more R&D. At the bottom of the slow-growth band, some companies have cut to 18%.
Source: 2026 Aleph × Benchmarkit SaaS & AI Performance Benchmarks, based on 342 B2B SaaS companies (R&D data n=192; AI data n=46).
The eight-point drop
Median R&D spend as a percentage of revenue.
R&D is one line in the P&L. Benchmark the rest.
The free 2026 SaaS Metrics Benchmark Report sets 20 SaaS metrics, including gross margin, Rule of 40, CAC payback and LTV:CAC, against published 2026 benchmarks. It gives the source and date for every figure. 48 pages, PDF.
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Three things worth noticing
The fall is unusually steep. An eight-point drop in one year is the sharpest since these benchmarks began tracking. R&D has absorbed more of the efficiency drive than sales and marketing has.
The curve is not smooth. Spend sits at 32% below $20M ARR, falls to 22% between $20M and $50M, then rises again to 26% between $50M and $100M before settling at 22% above $100M. That bump is worth understanding rather than explaining away. It lands where most companies re-architect for enterprise customers, and that cost falls in R&D.
Growth is the strongest single predictor. Companies growing above 50% spend 33%; those growing under 10% spend around 26%, and the bottom of that band has cut to 18%. If your R&D ratio looks high, the first question is not whether to cut it but whether your growth justifies it.
What is the best way to measure R&D?
The best way to assess R&D spend is through:
- Number of R&D or tech employees
- R&D as a % of Revenue:
- R&D Productivity
Number of R&D employees: This typically includes employees and contractors in both the software development and product teams, including those who work on tech debt and new features.
R&D as a % of Revenue is calculated as the total cost of the tech and product teams (salaries, pensions, cost of their tools and equipment) divided by revenue. This metric is readily available for larger SaaS companies, including those that IPO, and thus is useful in determining the gold standard for SaaS companies
R&D Productivity: This is a performance measure of how much new revenue is associated with each £/$ invested into R&D. It is certainly the hardest to calculate but is the most insightful measure for long term growth, with clear differences between the SaaS companies that lead their markets.
These measures are consistent across geographies and different types of SaaS businesses, which is essential in compiling benchmark data.
Is there a gold standard?
A useful reference point is companies that grew fast enough to reach IPO. Their spend clusters tightly, and close to today’s median.
The table below covers three IPO cohorts and shows R&D spend in the years around flotation.
| SaaS companies at IPO | At IPO | 1 year before | 2 years before |
|---|---|---|---|
| 2019 cohort (75 companies) | 23% | 22% | 23% |
| 2021 cohort (125 companies) | 24% | 23% | 23% |
| 2022 cohort (130 companies) | 24% | 23% | 23% |
R&D spend as a percentage of revenue in the years around flotation.
Interestingly, once companies IPO their spend on R&D falls. The consulting firm BCG found that across all software publicly listed companies, spend on R&D is between 17% and 26%, depending on the speed of their growth. Higher growth companies spend more, which reinforces their position at the top of the growth charts.
This data is specific to SAAS companies but derived from publicly listed businesses and thus only includes larger businesses. Sourced from S&P Capital.
For smaller companies, what R&D spend is normal?
The 2026 figures above are the current picture. The data below is older, and it is worth keeping for a different reason: it shows how differently the same metric behaves across regions and stages.
Figures in bold are for 2022, with the prior year in italics. Annual revenue indicates company size. European benchmarking data is collected roughly six months behind the US, so the European figures are slightly older again.
| Seed | Series A | Series B | Series C | Series D | |
|---|---|---|---|---|---|
| Annual revenue (ARR) | $2M | $6M | $15M | $15M | $50M |
| R&D spend — Europe | 23% (50%) | 20% (41%) | 23% (36%) | 35% (15%) | 35% (15%) |
| R&D spend — USA | 40% (40%) | 38% (40%) | 40% (30%) | 37% (38%) | 28% (35%) |
| Range, USA data | 30–60% (25–70%) | 25–50% (26–56%) | 29–50% (18–50%) | 29–46% (26–55%) | 16–44% (20–46%) |
Main figure is 2022; the prior year is shown in grey brackets.
What that older data showed:
- European Seed, Series A and Series B companies cut R&D sharply in the early 2020s, in most cases by close to half. Larger European companies increased spend over the same period.
- US companies invested far more in their software teams early on. US Seed companies reported 40% of early revenue going to R&D against 23% in Europe.
- Headcount matched the spending. US Seed companies ran 10 people in product and tech; European companies ran 6.
- By Series C, around $15M ARR, the gap closed. From that point SaaS funding markets behave globally, with little difference between European and American companies.
Set against 2026’s 27% median, the US Seed figure of 40% looks like the high-water mark of a different era.
At face value this looks like European companies reaching market for less. The deeper picture is different: overall spend is similar, but European companies shift money from engineering into sales and marketing at Seed and Series A.
That matters more in 2026 than it did then. With the median down to 27%, the question is no longer who spends more but who converts spend into product that retains customers. Research on product-led growth consistently finds early product investment is the most durable way to fuel long-term growth — which makes underspending at Seed a harder position to recover from now that everyone has trimmed.
And what about R&D productivity?
R&D productivity is the most complex of the three metrics. It tracks how much new revenue is associated with each major R&D initiative, and is calculated as:
Productivity
This metric – which becomes relevant from Series B – requires splitting R&D costs into maintenance (or dare I say tech debt) spend and new product development. Spend on new product development is then tracked for material new features, which are expected to generate revenue.
Tracking R&D spend by initiative and comparing it to revenue may seem tedious but there are simple ways that much of this data can be captured and automated.
And so what can we learn from this measure…..Mid-sized (Series C+) SaaS companies on a fast growth trajectory have an R&D productivity measure between 2 – 3. World class R&D productivity is closer to 10+. This means that companies with a slower growth trajectory will recoup 2 or 3 times their R&D spend on new products. The top recoup 10. This data is compiled by OpEx Engine, having tracked both privately owned and public SAAS companies.
This metric ultimately highlights the level of detailed tracking which is put in place at the highest growth SAAS companies. It is one of the most important critical success factors for early stage companies, with mountains (yes entire mountains!) of data showing that the strongest performing companies are data driven and ensure that the right KPIs are in place early. You can see some of those KPIs and metrics in our SaaS metric library.
The data is so compelling that reputable McKinsey concluded that “top SAAS performers insist on transparent data and metrics that allow them to gain an integrated view of growth and margin drivers.”
Data such as R&D spend as a % of Revenue, customer growth, net revenue retention, ARR, MRR, CAC, should be available each month, compared to your own targets, even for companies at seed stage.
So what is your R&D ratio?
You have the benchmark. The harder question is where you actually sit against it.
To get your own ratio you need R&D costs separated from the rest of the P&L every month: salaries, contractors, tools and hosting, coded consistently. In most finance teams that means a spreadsheet exported after every close, so the number is always a month or two old.
ScaleXP connects to Xero, QuickBooks or Zoho Books, groups your R&D accounts once, and calculates R&D as a percentage of revenue every month. It does the same for your other SaaS metrics, so the ratio is ready for the board pack rather than rebuilt for it.
