SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

In the first 3 years, these public SaaS companies spend between 80 to 120% of their revenue in sales and marketing (using venture dollars or other forms of capital to finance the business). By year 5, that ratio has fallen to about 50% where it remains for the life of the business.

Despite the divergent revenue ramps, the marketing and sales spend patterns for these companies resemble each other strongly and serve as good benchmarks for high-growth SaaS startups.

In case you’re curious, below is the “typical” revenue growth trajectory for these SaaS companies: $50M in year five, $100M in year ten.

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SaaS + Software Stats

• High-growth companies offer a return to shareholders 5 times greater than medium-growth companies
• Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015
• SaaS IPOs have more than doubled over the last 12 years
• Net-revenue churn improves with larger Average Contract Value (ACV), likely due to more structural churn among SMB customers and higher switching costs associated with larger contracts
• In 2017, IBM generated 37.8 billion U.S. dollars in global IT services revenue, making it the largest IT services company in the world in terms of net sales
• Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers
• All types of investment have grown, year-on-year, with the biggest growth during the seed stage of financing
• SaaS companies in the $7.5MM-$15MM range are among the fastest growers
• Internet Sales strategies have a significantly lower CAC of just $0.42

Market Research Stats

• Investment in marketing automation tools is expected to reach $25 billion by the year 2023
• Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing
• Cloud application services are expected to grow at an average annual rate of 18.5% through 2025
• 86% of SaaS businesses treat “New Customer Acquisition” as their highest growth priority, both in terms of executive support and funding available
• Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less
• Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added
• In 2017, Foxconn Technology Group achieved a net income of 135.37 billion New Taiwanese dollars, the equivalent to approximately 4.55 billion U.S. dollars.
• The aim of marketing is to know and understand the customer so well the product or service fits him and sells itself.
• Sony’s PlayStation brand had accumulated approximately 38.57 million fans on the social network