SaaS Benchmarking: What are the sources?
Excited to share resources for benchmarking SaaS companies
The primary objective of the newstletter is to continue to provide access to ideas and deepen my readers knowledge of SaaS. To better contribute to this goal, I'll not only share my analyses of top-performing SaaS companies but also provide insights and industry resources.
In this edition, I am introducing resources on how to benchmark a SaaS business. If you know anyone in your network who might benefit from these resources, please share and encourage them to subscribe.
Why SaaS companies should embrace benchmarking
While attending SaaStr this year, most panels discussed the operational best practices of the top-performing SaaS companies globally. But, how can one determine if their company ranks among the best? The answer is the subscription business model. It's inherently quantitative, boasting metrics that remain consistent across different industry verticals. As such, KPIs like Churn, Net Revenue Retention, CaC Payback, and Annual Recurring Revenue can be directly compared. Comparing SaaS companies is much like comparing lemons with limes. They taste diferent but are similar enough.
As a result, benchmarking offers a high-level overview of your operational strengths and weaknesses, enabling you to devise actionable plans for operations and fundraising. It equips SaaS Companies with the insight to determine the right timing for seeking your next venture round, while simultaneously highlighting areas of potential improvement in their business. However, as much as it is a powerful tool, it can be abused by not considering the specificity of a company. Benchmarking is not only science but also art. You have to adapt the premises to your individual reality of the business.
I am sharing with you free sources that I use as to benchmark and evaluate the performance of SaaS companies. These are a series of valuable research reports and resources that provide valuable insights on the performance of private and public SaaS companies.
Resources
ICONIQ - Iconiq SaaS Operational Metrics Benchmark
The Cloud 100 Benchmarks Report 2023 - Benchmark Report for Bessemer Cloud 100 Private Companies
Meritech Capital - Public Companies Benchmark Analysis
A16Z - Enterprise SaaS Benchmarking Tool
Sammy Abdullah (Blossom Ventures) - Medium Writer Frequently Publishing SaaS Metrics
LightHouse - Sales Benchmark Report
Special Considerations for LatAm
Building a SaaS business in LatAm is different than in other geographies that participate in the global benchmarks. Among many things, LatAm customers are earlier on their digital adoption curve and have less economic punch of customers than their US counterparts. This can be seen as an opportunity to create value in new markets but also a headwind on peneetrating a greenfield market.
As LatAm businesses are built to succeed in their local market, succesfully analyzing one and benchmarking them requires localization. From my anecdotal experience comparing them here are a select group of adjustment for saas metrics published on the reports:
Customer Acquisition Cost (CAC): CAC is often significantly lower for customers ranging from enterprise to SMBs due to several efficiency advantages. These include (i) reduced marketing costs for primary channels due to less competition, and (ii) a more cost-effective sales force that enhances sales motions.
ARR per FTE: This metric is typically lower in LatAm than global benchmarks. To offset smaller Average Contract Values (ACVs), companies in the region often drive higher sales volumes, which entails larger teams. The hiring strategy in LatAm tends to favor more employees at a lower cost to effectively scale the business, compared to global standards. For context, it's not uncommon for a LatAm business with a $25M ARR to have a workforce of 300-400 employees. As a result, any metric assessing revenue per employee should account for these regional discrepancies.
ACV: The average contract value tends to be smaller due to currency considerations and the pace of digital adoption in the market. For instance, an enterprise ACV in LatAm might be comparable in size to middle-market U.S.
Payback: Lower CACs lead to quicker payback periods in LatAm than in developed economies, even when taking into account the region's smaller ACVs. On the whole, LatAm companies usually exhibit greater sales efficiency and operational efficiency than in more competitive markets.
Churn: For SMBs and middle-market customers, churn rates in LatAm are significantly higher, influenced by greater business mortality rates and working capital challenges. However, enterprise customers in the region tend to exhibit similar loyalty levels as elsewhere.
This list is not exhaustive and can be improved. In fact, there are many specificities that can be included or excluded with solid arguments. Benchmarking is an art and not a science that can be used as a powerful tool to drive alignment, growth and establish strategic vision in SaaS Companies.
Thank you for taking the time to read. If you have any feedback or comments, please don't hesitate to start the conversation.