You are currently viewing SAAS Benchmarks

SAAS Benchmarks

It’s hard to believe that summer is nearly over. (I personally have not had enough sunshine yet so would
really like it to last several more weeks of clear skies but, alas, that may be the Texan in me – 😊 )
 
As we head into the autumn, many companies will start to reflect on their targets for 2022. As input to that process, over the next 6 weeks, we will publish six articles on some of the most common SAAS
benchmarks, providing data from the UK, the USA and where possible the impact of covid.
 
Today our focus is on revenue growth. 

What is revenue growth rate?

Revenue growth rate is the % increase in sales year on year.
 
Best practice is to consider only recurring sales, particularly for SAAS companies, with MRR being
the most common metric.
 
Our data platform calculates this for you, specifically considering the types of revenue that are
recurring, but in case you need to calculate the number yourself, the formula is a simple:
 
Revenue Growth Rate calculation

Why is revenue growth so important?

Investors, particularly California VCs, have tracked SAAS revenue growth rates for years. In doing
so, they have determined that for a company to successfully IPO, they need $100M ARR with a
growth rate of 25% or more.
 
Working backwards, and using data from their own companies, they determined best in class growth
rates.
 
The conclusion: Revenue growth rates fall as companies get larger, with the relationship best
represented through a logarithmic scale.
 
And so what are the benchmarks?

The Gold Standard Benchmark

The gold standard benchmark for measuring SAAS growth is the Mendoza line, which plots growth rate compared to size.

The concept of the line, as well as the original concept was created by Scale Venture Partners, a California VC and early investors in Box, DocuSign, and many other large enterprise SaaS companies.

Top SaaS companies vs. Mendoza line
As you look at the line, it’s worth taking a moment to assess where your business sits. In plotting your data, please keep in mind that vertical axis represents the forward growth rate, or the rate you expect to achieve over the coming 12 months.
 
For most European companies, the idea of IPO-ing on the Nasdaq is not realistic. The LSE or DAX will do
just fine – 😊, which leads nicely to the second set of benchmarks.

A Global View

Openview provides a more balanced set of benchmarks. Their data is collected by a global set of
VCs, including one based in the UK and several based in Europe, so the data presents an
international view, to the extent that this is possible in a year as tumultuous as 2020.
SaaS Growth Rates (A Global View)
Even at a glance, the differences are even more apparent, with the Mendoza line indicating growth rates up 47% higher.
 
The OpenView data is from 2020, whereas the Mendoza line is 5 years old, leading to the next
question.

What has been the impact of covid?

We don’t have 2021 data for at least 6 months, but the impact of 2020 is clear, with growth rates
20% lower than in 2018.
Impact of COVID on Growth Rate

Are there any UK or European specific benchmarks?

Sadly, there are very few robust SAAS benchmarking studies in the UK. Serena did conduct a
European wide study of 108 companies (only!) with the following findings:
SaaS Growth Rates (European view)
The lack of wider data for UK companies is lamentable and certainly something that we (all!) should
work to address.

Conclusion

In the meantime, please share this articles with your friends and colleagues, anyone who may find it useful.
 
Next week, we will focus on CAC and CAC Payback, followed by funding by growth stage and then Net
Dollar (Pound) Retention. If you would like other SAAS benchmarks, drop us a note. We would love to
understand what you would find most useful (admin@scalexp.com).
 
Remember to “Follow” us to receive notifications over the next 6 weeks of future benchmarking articles.
 
And most importantly, keep your fingers crossed for a beautiful September with lots of sunshine!

Leave a Reply