Historic SaaS Benchmarks and Trends

Live from Schenectady, New York, it's SaaS Talk with the Metrics Brothers, Growth and CAC.

And I'm Growth, better known as Ray Reich, founder and CEO of Benchmarkit.

And I'm CAC, better known as Dave Kellogg, independent consultant, EIR at Balderton Capital. And author of Kellogg.

And together we are the Metrics Brothers.

And quite a pair at that. What's on tap for today, Sir Ray?

Well, I'm glad to see that you're actually addressing me properly now with the sir. So thank you for that.

Does your wife have you podcasting from the garage again, Ray?

She let me out of the garage today because we just bought a new car and there's just not enough room now.

Ah, okay.

Okay. So, you know, one of the interesting things, and I think one of the reasons that we are the Metrics Brothers, is we find a lot of the same articles and reports to read. And recently we found the SaaS Letter newsletter from Cloud Ratings, and he had done a decade-long trends of SaaS metrics according to the annual KeyBanc report. So I thought, let's do an episode on that.

Awesome. Seems like a good topic. Wait, that's the same David, the guy who created the original PAC-CREST study is the person who created this, correct?

That is the David Spitz, a founding member of the SAS Metrics Standards Board.

Oh, awesome. Awesome. Yeah, I know him well. Speaking of Ben Shreitz and David Spitz, how are the additional sponsor battles going over there, Ray? Is Kelly O'Byrne's Irish Pub in Schenectady still our best prospect?

Well, I was trained early in my career how to do deep research, before I do the outreach. So I'm a VIP member of Kelly's Irish Pub now. I know they're located at 121 Wall Street, and I even saved it in my GPS in case I need to drive up there if those other sponsorship prospects don't quite work out. But I think it might be a, a good time to hear from our presenting sponsor, Maxio. What do you think, Dave?

Good idea.

The Metrics Brothers is proudly sponsored by Benchmarkit, The B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Kellogg and Ray Groth-Reich have put the Metrics Brothers podcast on hiatus for the remainder of 2026. All episodes we have ever recorded are still available on your favorite podcasting app. You can reach Dave at Kellogg and Ray on LinkedIn at Ray Reich. Thank you so much for listening to the Metrics Brothers podcast.

You do that so well, Ray. A natural. Ready to dive into this Longitudinal Benchmark Report?

I sure am. And why don't we start with you kind of just giving us a big picture of what it is?

So, you know, why do we like this study? And I think a couple of reasons. One, it's one of the few studies that has— that shows a lot of history. And in fact, it's kind of a meta-study because it's relying on what was originally the Pacific Crest study, which turned into the KeyBank study. And he's just doing a study of that study over its evolution for, I think, an 11-year period, maybe 12. So, I like it because it's bigger picture and longer term. I like it because I think it helps our audience get a better sense for what the new normal will be because we lived in kind of the crazy free money era and that kind of skewed metrics. And now, we're kind of in a whiplash reaction to that, kind of a new austerity era. And the question is, when all this whiplashing is over, what is normal going to look like? And I think that looking at history can help us do that.

I think it's great. And the nice thing is the consistency over those 11 years. KeyBanc, even though they added new metrics every year, some of those good staples they kept in for all 11 years. So it makes it easier to do this podcast.

Indeed it does. Should we start with the executive summary, Ray? You want to go first?

Yeah, let me do that and encourage everyone to Just do a search on the Historic Benchmarks Report and cloud ratings, because there's a lot of data on here. But kind of what jumped out at me was number one, expansion, an expansion of percentage of total growth revenue. And back in 2010, it was at 19%. But in 2021, which is the latest year that Matt did on this, it was at 46%. And I know you've got your rule of 30, Dave, but They're saying it went from 19 to 46 at median. And I did go and check to make sure it was median. That's a pretty significant increase, 27% on a whole basis. But if you look at it just as a period over period, that's over 2x increase in revenue from expansion. So that surprised me.

Yeah, that's a big one. And by the way, Ray, thanks for reminding the audience that you get their support. I'll do it one more time at Cloud Ratings. And you can Google for cloud ratings, SaaS historical benchmarks, and you'll find it. What are some of the things I see here, Ray? I mean, that was obviously expansion percent, more than doubling was one that caught my attention. Gross churn nearly tripling caught my attention as well, going from 5% to nearly 14%. And that's before the kind of tough era of today where I suspect it's gone up. Well, one of the things about this report is that it strangely doesn't include the 2022 KeyBank numbers because I think they were released. But there are no 2023 numbers that I'm aware of. So this thing kind of stops in 2021. And just in the period from 2010 to 2021, it went from gross churn, went from 5% to 14%. And frankly, I'm surprised how low 5% was. And I'm equally surprised how high 14% is, especially if that's before kind of the new, the new hardship era.

I agree. And the other thing, so churns went up, And we should talk a little bit about why we think these things happen. But at the same time, acquiring new customers, which to give credit to David Spitz and KeyBank, they really defined this kind of new logo CAC and expansion CAC ratios. And new logo CAC went from $0.93 for every dollar of new ARR to $1.78. That's almost doubled. And expansion CAC, which is how much it costs of sales and marketing expense to get $1 of expansion ARR from an existing customer went from $0.28 per dollar of ARR to $0.61. So it really tells you that it's harder to keep customers and it's a hell of a lot more expensive to get customers and grow customers.

Yeah, they look at several CAC ratios— new logo CAC, expansion CAC, field sales CAC, and inside sales CAC— and the only one that didn't double or more, or approximately double, was inside sales CAC. That's only up 56% from $0.90 to $1.40. So, yes, I think one conclusion is very much that it is more expensive to acquire customers. And look, if you're in the audience, this is relevant to you because you want your board looking at the more recent data, right? If they were an early SaaS investor and they're used to a CAC being around $1, they may be surprised to know that the new median is $1.80, right? And they'd be holding you accountable to a higher bar than either is the market reality today or what your competitors are likely doing today.

And last thing before we move on and dive in deep in, you know, 4 or 5 of these, Rule of 40. I now understand why they called it the Rule of 40, because back in 2010, the median value was 46, and that's growth rate plus free cash flow, or EBITDA as a proxy for free cash flow. But in 2021, The median was only 18%. So a decrease of, on a whole number basis, 28%, but on a percentage basis, it was cut more than in half, Dave.

Yeah, Rule of 40 has been kind of banged up from 2010 to 2021. And I think it gets further banged up from 2021 to 2023, 'cause I think growth is down. Now, the good news is with the strong focus on EBITDA, in fact, maybe it's not getting hit so hard. when we see the newer numbers because Rule of 40 obviously combines those 2, in this case revenue growth and EBITDA percentage. So to me, not surprising it got banged up, a little surprised of how much it did. The last thing on this slide right before we leave is I just want to talk about what didn't change because a lot has changed, but what didn't change? R&D percent remarkably stable at around 23% to 25%. Gross margin percent remarkably stable at 71% to 73% on the median. And then, even revenue per employee, one of these great kind of normalizing metrics, it has remained remarkably steady at $142K or $143K. Okay. $142K per year. And that's a median. And I think if you want to see the segmentation on that one, I think we talk about it later. But Iconiq has their Enterprise 5 and they do a nice segmentation, particularly if you're a larger company.

Yeah. And before we move off the executive summary, you know, I was really trying to think about what does this tell me about the industry and how has it evolved? And I think it's pretty apparent because of all the capital and all the new companies from less than 10,000 SaaS companies to over 40,000 today, it's harder to acquire a new dollar of ARR. It's harder to retain an existing customer. And if growth efficiency is really kind of a thing of bygone eras until 2023, that's what it told me, Dave.

Got it. So let's move on now to the next one. I agree, by the way, everything got harder. Whiner Ray, we're going to call you now.

So— Come on, I'm going to have a Guinness at Kelly's, not a glass of wine.

So NRR remarkably stable over the time period, running in the 105% range. I think, remember, these are medians, so I would define this colloquially as what's a respectable NRR, not like what's a great NRR. That would be more 75th or 90th percentile. But I think your survey at Benchmarkit has always said 104, 105 is a respectable NRR, and the PacCrest data over this 11-year period has said roughly that, with the exception of 2021 where it kind of shot up to 109. But every other year, it's basically flat at 102, 103, 105. So this one to me is quite stable. I expect it to go back to those numbers as we hit the new normal. I know right now some companies are struggling to keep it above 100, which I think is actually quite important. But what do you think of this one, Ray?

Yeah, same thing. Very stable. You know, the 2022 benchmarks that we did, and this is not supposed to be a Benchmarkit advertisement, but it did, you know, right around 105. So it's pretty consistent across these benchmarking surveys. The other thing I would say is, When you see these 120%, 140% NRRs from the usage-based pricing public companies, the best of the best, Snowflake, Datadog, Twilio, don't get caught up in that because this is empirical evidence that 105% to 110% is pretty damn good.

Got it. I want to keep us moving, Ray. Percent of revenue from expansion, i.e., percent— well, I'm going to call this percent of ARR from expansion. It may actually be part of the difference. You need to think about that. But the actual title of the slide is percent of revenue from expansion. I have what I call my rule of 30, Ray, as you know, which is roughly 30% of new ARR should come from expansion. The other 70% should come from new logo. And of course, my rule of 30 is consistently wrong. In the period from 2010 to 2016, it was more like 20% on average. And in the period from 2017 to 2021, It's more like 40, just to kind of simplify the chart. So in any case, I still think 30 is a good median in between those 2. I derived that rule from first principles and just from looking at my own data at Host Analytics. But if you look at today, the more recent charts are showing 34%, 37%, 36%, 46%, a whopping 46% in 2021. And I'd expect that only to go up in 2022 and 2023.

So I hope I use the right word here, but I think you were just prescient, which is You took all these 11 years, did an average, a mean, and it's about 30%.

Yeah, yeah, that's true. If you look at the 2 modes, yeah, yeah.

So, you know, what jumped out at me was, you know, the big leap in 2021. And I just did some first half '23 and it's about 44 or 45% at median for the research we just did. So this is aligned, but it tells me that number one, companies are probably doing more multi-product portfolio, or they're doing more usage-based pricing coupled with some PLG, and that's getting more expansion. So I think the changing business model of SaaS is also contributing to the last 3 or 4 years in this report, Dave.

Yeah, I think there's one other factor, which is potentially gaming, which is, you know, what measured— gets measured gets managed. NRR started to get really important somewhere around 2017, 2018. And it wouldn't surprise me if more and more companies started building it into their contracts, building into their business model, building into their land and expand strategy to the point where they might even land a little slower and kind of tip, I would say, tip the line of the ARR in a multi-year deal. So, I'm pretty sure, I don't know how many points of this is that, you know, maybe 5%, but I'm pretty sure that's happening too.

Yeah. I don't know if you're familiar with Goodhart's Law, but they say once a measure becomes a goal, The measure becomes less valuable. So, I think people are structuring their expansion versus new to optimize NRR.

Yeah, I have heard of Goodhart's Law. And for years, I tried to beg CROs not to tell sales we wanted 3x pipeline coverage because as soon as they knew we wanted it, we were going to get it. And basically, I begged them like on my hands and knees, like, you're going to wreck this metric and it's a really good metric and you're going to ruin it. As soon as you start making it a goal anyway.

Okay, let's move on to the next one. It's new logo versus expansion CAC.

Well, I'm CAC, so I'm going to go first, Ray, because I'm CAC. Okay. So look, new logo CAC nearly doubled over a decade fairly slowly and steadily. If you're looking at the chart, you'll see basically it goes from like $0.93 in 2010 to almost $1.80 in 2021. And I guess my main point here is the one I mentioned already. Make sure your board is using recent data because the fact of the matter is it's more expensive. to sell SaaS software than it was 5 years ago. And unless your board is currently sitting on a bunch of other SaaS boards, just say they're doing some other stuff, maybe some AI or some other newer stuff than kind of good old B2B SaaS. They may be kind of measuring you against somewhat outdated metrics. And this is one that's really changed. The probably surprising thing to me here is that expansion CAC is way up too, which I don't really understand. I don't know if you have a point of view on that. But, but net-net to me, Ray, costs $1.78 to sell a dollar of NewLogo ARR at median. So that means you're gonna need cash to grow. But do you have thoughts on the expansion CAC?

A couple. If they've included the, an allocation of customer success managers' costs who are responsible for helping to identify upsells and cross-sells, I think we've not overinvested, but invested a lot more in CSMs over the last 5 years. So I think that's impacting it. I've also seen us invest in these growth marketing organizations responsible for taking existing customers and growing them. So, I think we've layered a lot more organization complexity and thus cost into the model.

So, I don't know if you've seen the Twitter meme with Vince McMahon kind of crying. I think he's talking about the death of Andre the Giant. I'm not sure. But Vince McMahon gets all emotional. And I'm putting out a tweet. I don't know if it's out yet. I scheduled it, which is, Fred, tell us what it was like in enterprise software before we had customer success. Or not Fred, what am I thinking? Frank. I'm trying to say Frank Slootman. Frank, say what it was like. So, I think you're right. I think there's now a backlash to the CS movement in general that Slootman is kind of leading. But certainly, an allocation of customer success would be a great way to drive this ratio up.

And but let's shout out to our good friend Nick Mehta. We love customer success here at SaaS Stock.

Yes, we do. Sloopman's wrong, Nick. We're on your team because we like successful customers. That's super news.

Yeah, you want to move on to Rule of 40? I'm sorry, it's not the Rule of 40, but to the Rule of 40?

Sure do. Look, Ray, in this report there's about 3 to 4 different charts on Rule of 40, and I think they're all interesting. The one I like the best is not— is actually has 3 different— it has all 3 bars. It's got revenue growth on one bar, kind of a clustered bar chart. EBITDA margin and R40. And when you look at that chart from 2015 to 2021, growth came down, but EBITDA margins went strongly negative. And you can see that if you look at it. I think I kind of have the slide number. Overall, the trend here is down from the 30s in 2009, 2014 timeframe into the teens for most of '06 to 2021, exception being 2020 where it was 26.

Okay.

Almost an anomaly if you look at the chart. So I think, as you mentioned earlier, Rule of 40 grosso modo has been cut in half over the last decade. Rule of 40 score, I should say. I think it's confusing for people because we talk about Rule of 40 and then say it's 18 and people's head hurts, which is why I call the metric the Rule of 40 score. Some people are, are you Rule of 40 compliant? Yes, no. I think that communicates less information. Because in most years, the industry isn't Rule of 40 compliant on average here. Only 2 years they were, 2010, 2011. So, I think the Rule of 40 score has been cut in half. And, you know, some people say that with AI, we're going to have the Rule of 60. I don't know if you've heard that one, but people are saying we're going to get such efficiencies in software, but we're a long way from that. I went and checked on Meritech Public Comps, and only 6 out of the 80 companies in that dataset are Rule of 60 compliant. Only 6 of them have a Rule of 40 score above 60.

You know, it's funny, Dave, I did a similar thing with Rule of 40, and it's only like 35 to 40%. Even exceed Rule of 40 in that.

Yeah. Yeah. Rule of 40 is a pretty high bar. And as you mentioned somewhere, Ray, I don't think you've talked about it yet today, but I know you're passionate about this. You don't like applying Rule of 40 to a company too early in its growth. You wanna talk about that quickly?

Yeah, I definitely think, and until you get to about $20 million and you're really looking at more true repeatability in the same market segments, you know, enterprise or enterprise plus commercial, I think it's so misleading because You can actually goose your growth rate when you're small and not even worry about it because you're going to grow 200%. So you can have a 200% growth rate, negative 50% EBITDA, you still got a 150 rule of 40. It's meaningless.

Got it. Well, Ray, maybe Diet Coke could be a sponsor too. Do you have them on the pipeline? I just realized we're giving Coke free advertising here, uh, for those watching the video.

You know what, but since Coca-Cola is in Atlanta, Georgia, when I go down to visit Maxio to talk about Their sponsorship, I'll visit Coke too. Good idea.

Hey, go visit Delta too. We can have an official airline. That'd be okay.

See, there goes my marketing partner though, getting me outside of my ICP.

Here we go. We're here to help, Ray. Last trend we're going to cover today. I think there might be a bonus one, but the last core one is revenue per employee. Been remarkably stable at about $140K. I think that's misleading in one sense, just because this one segments quite a bit. This one varies a lot with segment. And just go look at the Iconiq Enterprise 5 to see that. I don't know if you have any numbers you want to spout off, but yes, the overall SaaS at median is 140. But when you look at different sizes, it varies quite a bit. Basically, the bigger you get, the higher this should be.

Yeah. What this tells me at 143 at median, that probably means the companies at a median are probably in the $15 to $50 million ARR range because you don't see it getting close to $200 million. I'm sorry, $200K per FTE until you're $50 to $100 million typically.

Got it. $200 million per FTE, Ray. You're getting me excited there. Got it. $200K. Back to the real world. SaaS talk where we only get off by a factor of 1,000. So, last slide, SDRs. Boy, this was a tough slide from the deck that in 2014, you'd have 8 quality conversions per day. And 7.3 attempts in a cadence. And in 2022, it's now 11.3 attempts to get 3.6 quality conversations. So the SDR job, which in my opinion was never easy, has gotten a bunch harder. And therefore, I would just say, look, a lot of people view outbound as a savior. And sometimes it can be, like if you're doing ABM or highly targeted marketing and you have a big deal size, It can make sense to do a lot of outbound. But I worry that some people may think it still works like it used to. And a friend may give you, hey, SDRs worked amazing for us in 2018. Well, gosh, they worked amazing in 2018. They work a lot less amazing today. Thoughts, Ray?

Well, even though we're 21 minutes into the session, I want to take 5 seconds of silence for the demise of the SDR. Because my hot take projection is based upon the noise, the lack of efficiency of outbounds through SDRs, and the advent of AEs. I think that organization is going to be much smaller over the next 3 to 5 years.

I think AI automation is going to help as well. I think you'll have a relatively small number of highly productive SDRs. So, so, so I agree with you on that one. Since I know we're up against time, Ray, I'm going to start to wrap this up here. One, People, please check out this report, Historical SaaS Benchmarks by Cloud Ratings. I believe Matt Harney is the author there. It's in a nifty interactive PDF format. Mute the sound because you get all this page turn audio. It's available at cloudratings.com/saas-benchmarks-historical, and there's a lot of great data to see in there. Bray, back to you for any final thoughts.

No, I'm just so happy that Matt did this, and I think it's a great understanding of how this industry has evolved. The question I have, and maybe we can do this on another episode, what do we think these are going to look like 5 years or 10 years from now, Dave? Because I think some of them will change dramatically.

Interesting. And I think a lot of them will regress back to the mean. So we'll have to do an episode on the new normal, Ray. Let's add that to the list.

All right. Hey, I really enjoyed this episode. Thanks a lot, Brother Dave.

Thank you, Brother Ray. Take care. The Metrics Brothers AI, SaaS, and More is a production of The Metrics Brothers Growth and CAC and a member of the Benchmarket Podcast Network. By accessing this podcast, you acknowledge that the Metrics Brothers make no warranty, guarantee, or representation as to the accuracy or sufficiency of the information provided or the humor content of the jokes told.

Ray.

Information, opinions, and recommendations presented are, according to our spouses, probably wrong and provided for information purposes only. This podcast should not be considered professional or, for that matter, unprofessional advice. We disclaim any and all liability for any direct, indirect, indirect, misdirect, incidental, special, ordinary, consequential, inconsequential, or other damages arising out of any use of, or God help you, reliance upon the information presented here. Ray Grothreich is based in New York City and available on X @RayReich. Dave Kellogg is based in Silicon Valley and available on X @Kelblog. Schedectady, which is French for unspellable, is not our actual production location. Thanks for listening.