This is the fourth article in our series covering SAAS benchmarks.
So many early-stage companies wonder how they are performing v. the norm. Our objective in publishing this series is to use useful data to help understand performance, both your strengths and areas for improvement.
This article focuses on cash burn by growth or funding stage. We include data from the USA, Europe, UK, as well as the impact of covid. Keep reading for all the juicy details….
One of the idiosyncrasies of SAAS companies is that the faster they grow, the more cash they burn initially. It sounds crazy but it is an inherent truth of the SAAS model.
Take a look at the graph below. The green line – which is based on acquiring the highest number of customers – shows the largest cash losses through Month 28.
The data in the graph is based on a few simplifying assumptions: Costs are fixed (salaries, office, etc). Each customer pays the same subscription fee. CAC per customer is flat, and the CAC Payback is 13 months. The only variable is the number of new customers.
Due to the CAC payback period, faster growth drives steeper initial losses as the company is ‘paying’ more to acquire a higher number of customers. This point is certainly worth keeping in mind as the business gains traction and accelerates.
It may also be worth a quick glance at the impact of acquiring just 1 customer. The cost of acquiring a customer results in negative cumulative cash flow for 12 months.The faster you grow, the deeper the upfront cash hole.
And so…What’s the burn rate per growth stage?
This table provides a summary:
The norm is for companies with less than £2M ARR to generate losses of £40k per month. This increases to £125k per month at £2M ARR and continues to increase through £40M ARR, when most companies reach break-even.
There is huge variability in the monthly burn rate, with some companies reaching break even quickly (£0 monthly burn rate) and some not doing so until they reach £40M revenue. See the graph at the end of full details.
This data is sourced from Open View’s global 2020 SAAS benchmarking study, based on input from more than 1200 companies. While global, does disproportionately focus on the USA. Leading us to question…
What about Europe?
SAAS benchmarks are prevalent in the USA but, sadly, less so in the UK and Europe. The best data that we can find suggests that European SAAS companies generate larger losses initially, in the Seed and Series A. Then around Series B, they move towards a global model, as shown in Image 2 above.
For easy reference, here is the European data.
What is monthly cash burn for UK SAAS companies?
UK SAAS benchmarks are just so hard to find, virtually non-existent.
To provide a qualitative assessment of the data, we asked our friends at Founders Factory, who have invested in over 200 companies and have ongoing relationships with so many VCs, to provide a qualitative view of the market. Input was provided by Darren Mulvihill, who is in the epicentre of fundraising.
So here is the bottom line for UK SAAS companies:
SAAS companies tend to have monthly cash burn rates at around £40k in Seed stage and continue to accelerate through Series D. This is driven by the upfront investment of building software and acquiring customers.
And, if you have any thoughts or input, we would love to see them in the comments below. We would love to hear from you!