KeyBanc Capital Markets 2023 SaaS Benchmark Report

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 Balderson Capital, and author of Kellogg.

And together we are the Metrics Brothers.

And a dynamic duo at that. Ray, over the past few episodes, we've covered Meritex Metrics at SAS Metricspalooza, the OpenView 2023 SAS Benchmark Report, Battery's State of the Open Cloud Report. Do you think we've got another benchmark report episode in us?

Well, I know I do because I could talk benchmarks all day long, but I'm less sure about the audience. But because of the one that we're going to talk about today, It's the granddaddy. It's the industry staple, the Rose Bowl of SaaS benchmarks. And that's the KeyBank Capital Markets Annual SaaS Survey. So I say, let's do it.

You know, Ray, I'm old enough to remember when this thing was called the PacCrest SaaS Benchmark Report, Pacific Crest, started by David Spitz, now of Benchsites, in 2010. It's now in its 14th year. KeyCorp acquired Pacific Crest in 2014. So ever since then, it's been the KeyBank Report, but old-timers think of it as the PacCrest SaaS Report.

That was a nice stroll down memory lane. And one of my favorite people in the industry is a fellow SAS Metrics Standards Board founding member, Dave Spitz. So let's jump into this, Mr. CAC.

Okay, Growth. So first, we were both excited to get this report. Every year, this report to me was like Steve Martin's old movie, The Jerk. I'd say, the new phone book's here, the new phone book's here. And I'd run around and, you know, I'd read it, you know, 3 times. And I think, you know, both of us felt that way when it came out. And I think we were both kind of disappointed after we read it. So there's a number of serious problems with this. We thought about canceling the episode covering it, but we decided to go ahead anyway, but with a different tack. So what we're going to do today is three things: one, we're going to discuss the problems with the report in some depth, both as hopefully input to KeyBank, but also to help our listeners spot trouble. I thought watching us go, "Wait a minute, there's a problem." Oh, wait a minute, it's severe. Oh, wait a minute, right? The process we went through, Ray, I thought was illustrative, and people might learn by like how two people who. care too much about this stuff, think about these reports. Then after doing that, we'll discuss quickly about some of the things we liked about it, things, strengths that this thing can build upon. And then at the end, if we have time, we're gonna just fire off the reports that we rely on day to day for different SaaS companies.

That sounds like a great place to start. Well, let's highlight some of the, maybe the challenges we found in the report. And number one, sample size. This year it only had 106 Total respondents. That's down dramatically from the 330 in 2022, the 500+ in 2021. So that's not great in general. And by having a smaller population, it also makes it more difficult to segment by company size. An example, you know, there's 31 in the $10 to $25 million range, but only 16 in the $25 to $50 and 18 in the $50 to $100. So those were some of the challenges, but they also did other segmentations. Dave, what'd you think about some of the other segments they approached it with?

Yeah, I mean, I think the net point, just to keep us moving, is like they look by ownership type, VC versus PE versus bootstrap. But the fact of the matter is it's very hard to start slicing a sample with 106 respondents. To me, this came to a head on slide 16, the sales and marketing funnel. Hey, that's a great strength to build upon. More people should include that funnel in their SaaS benchmark reports. But they only had 24 respondents to that question. And so you can't cut it at all. And to their credit, they don't try, but it just makes the data questionably meaningful. So the other thing, Ray, is timing. So I think this report has 2 problems, 2 kind of Achilles heels. One is a small sample and the other is bad timing, which is we hear the instrument went out mid-year and mid-year is just not a great time to run a benchmark, right? Because you're going to have to rely as they do on estimates. You'll see 2023E In this report. And when I saw that, I was like, what, why is there an E in a Benchmark report? And I realized it's because they are estimates because they ran the thing mid-year. And when you do that, you end up being late, right? Because the last real data in here is 2022 and they've got mid-year '23, but they're not even publishing 1H '23. They're just publishing 2023 estimates. It's kind of a mess. And I think what kind of doomed them on this path was the timing of the survey. Thoughts, Ray?

Yeah, well, if you look at slide 5, I think it really jumps out at you because here they are with 2023 estimates and the timing. You're exactly right. But some of those metrics that I live by, like CAC payback period or the rule of 40, even quota attainment, there's no way you can collect data in June, July, or even August and estimate what quota attainment is going to be. So I think slide 5 is very illustrative of the need to try to do this at the beginning of the year after you have the actuals for the entire year.

Yeah, if you're looking for telltales of problems, the E in the column heading and all the blanks in the second column, those are massive telltales of problems with the report. I literally thought I had a draft copy and I waited, we waited to do this episode to make sure we were looking at the production release. So the other things, You know, there's other stuff in this report that just don't make sense. That, let's go slide by slide on this one, right? On slide 4, for example, some things just don't smell right. They cut ARR by customer segment and they say that 6% of the ARR represented by companies in the survey was sold to very small business. Okay. I like the fact they have that segment. But then they say that 10% in the chart next to it was sold to sole proprietors. And sole proprietors should be a subset of small businesses, yet they have more ARR. It just doesn't make sense. Slide 7, I'll give you one more and I'll let you do 2, Ray. Slide 7, what smelled wrong to me was that they show, first, the formatting is kind of weird, but they show ARR by ownership. And next to that, they show median growth rates. And you can see that, you know, bootstrap/independent companies in 2022 are growing faster than either VC or PE-backed. That doesn't make sense to me. So did you have any other stuff, Ray, that bugged you about the data?

Yeah, it was slide 10, and I really like the fact that they were showing the split of new logo ARR contribution to total growth versus expansion ARR. And they showed 2022 and they showed 2023, so I was excited. Then I started looking at the data and it's like, well, wait a minute, 2023, the expansion ARR Not much bigger than it was in 2022, and I know with the benchmarking that we do, there's at least a five to ten percent increase in most companies of expansion ARR contribution. But then I looked at things like the fifty million to a hundred million million million segment; it was forty-five percent of contribution to total growth was upsell in 2022, and that's down to thirty-two percent this year.

Now.

In survey-based research, you can say, well, it's got some selection bias because it's a different group of customers. But that really leapt out, jumped out at me and said, there's some concern I have with this particular element.

Yeah, look, overall on slide 10, expansion ARR actually goes down by 1% year over year. So they say it's 42% of all ARR in 2022 and 41% in 2023. And that's just so not what either one of us are seeing in our real life. It's a massive flag. It's also, I mean, it could have something to do with the E, the estimate, but I don't think so because this impact started to happen. I think we both talking about earlier said it started to happen in the first half. So this wasn't a question purely of timing. There's something wrong with this data.

Yeah, so let's jump to page 35 and it's about capital efficiency. And I know you have your own kind of framework for this. I'm going to pass it back to you and tell us about what this slide says to you or doesn't say.

Sure, a couple of things. So one, my framework is a thing I call the rule of 5, 6, 7, 8, 9. Go look up the blog post on Kellogg if you're interested. But I think, and this has that same spirit, they're tracking years required to get to certain milestones. I use slightly different milestones, but I like that. They're also tracking total capital consumed to certain milestones. I like that. I think I actually prefer to use burn multiple or Bessemer's cash conversion score, but it's roughly the same thing. So, so, but I'm used to seeing it as ratio, which is what Bessemer's CCS does. But in any case, good, good stuff to look at. This slide just first, it has a straight up technical error, which is in the bottom right cell. It says the total capital consumed is greater than $50 million. And this is a data cell. There shouldn't be a greater sign in it. This is not a category, right? Right? This is a data cell. So, so that's a problem. And then just the data doesn't make total sense to me. Like, for example, they seem to imply that in 2022, again, the data is all old, right? Because you look at the heading and go 2023. This thing, I first saw it November of 2023. And like, where's the 2023 column, right? So back to the timing issue to beat that drum. But some of the implications just don't make a lot of sense to me. Like they're saying what, if it takes $13 million to get to $10 million in ARR, they're saying it takes $18 million to get to Which kind of implies it takes 5 incrementally to get 15, 25. And that's definitely not true. And then they go ahead and say, as you pointed out earlier, that it takes an extra 27 to get from 25 to 50. So something's wrong here with the way they're doing it. It would actually be better if they just looked at cash conversion score, because you wouldn't have to bucketize it. You could just ask companies, how big are you and how much have you spent? And then you'd show CCS. So they kind of created their own interpretability problem here.

Yeah.

Yeah.

Now, I'm ready to move on to some of the slides that actually were pretty good and they made me think. You okay with that, Dave?

I am, Ray. Here, I'll start out. Let's go back to slide 3 for those following along in the PDF. I like the fact that it's actually slide 4, I think. I like how they did the segmentation that included very small business. A lot of SaaS benchmarks only look at enterprise, mid-market, SMB. And the fact of the matter is selling to a 1 to 10 person company, although I don't think they provide their definition of VSB, selling to a 1 to 10 person company is Quite different than selling from 10 to 100, right? And 100 to 250. So, but I like the notion that they had 4 segments. Back to you, Ray. What did you like?

Yeah, I like that. Well, I'm gonna go to slides 13 and 14, and it really talks about gross dollar churn. And on slide— and I'm scrolling here real quick just to make sure I say the exact right data. So sorry for the little bit delay, but On slide 12, actually, they give the gross dollar churn by ARR segment. And I really like that because it shows that your gross churn is, you know, 17% when you're less than $10 million. You get up to $50 million and it's 9% at median. And then at greater than $100 million, it's 11% at median. But the slide that I really like the most because I don't see it very often, was slide 13. And it shows annualized gross dollar churn by 2 different variables. One is by contract length. So it looks at less than a year where you have 16% annual gross dollar churn. For 1-year contracts, it goes down to 13%. For 1 to 2-year contracts, it goes down to 10%. And for 2+ years— The Metrics Brothers is proudly sponsored by Benchmarkit. The B2B AI and software industry's largest, broadest, and most contextualized benchmarking index. Dave Cat Kellogg and Ray Growth Wright have put the Metrics Brothers podcast on hiatus for remainder of 2026. All episodes we have ever recorded are still available in your favorite podcasting app. You can reach Dave at Kelblog and Ray on LinkedIn @rayreich. Thank you so much for listening to the Metrics Brothers podcast. It goes down to 7%. So even though overall it's at 12%, it really shows you that agreement length matters. But then the next one, which, you know, we always talk about, don't get too much professional services in on your income statement because investors won't like it because it's at a low gross margin. But what this shows you is with no professional services, the gross dollar churn rate is 15%. If your professional services equals 5 to 15% of your upfront ARR, the churn goes down by almost 50% to 8%. So it really shows me that professional services, if it helps the customer with enablement, onboarding, training, it makes a real difference in gross dollar churn rate, Dave.

Yeah. So when I ran Host Analytics, we definitely tracked churn by average contract duration, ACD as I call it. And we did that because we did a lot of multi-year deals. So I think it's a great metric to track. Glad to see it like you are. And then I never tracked churn by PS attach rate. And I think it's a great idea that they did. So agree with your comment that overall on the income statement, we need to make sure PS doesn't get too big. 15%, 20% of revenue, I think investors start to get nervous. By 30% or 40%, they're really nervous. But the idea, and this is an attach rate, not percent of sales, the idea that, hey, more services attached to the initial order, tends to reduce churn. I absolutely believe it and glad to see it in a benchmark. I'm going to pick up here with something I liked on slide 16, which is I was really glad to see, as mentioned, that they did the marketing funnel conversion rate. The problem here, just look at the bottom left-hand corner, is only 24 people. It's just not enough to be meaningful. By the way, I think these metrics are high, like a 32% sales accepted opportunity to win rate. I've seen it, but that's like best, best in class. There's no way in my mind that's median. And what you want to do is segment it. Maybe it is median for like big enterprise ABM, but there might only be 2 companies in the sample at that size here, right? So you need more data. So I don't trust that data, but I think it's glad that they've got it there. I think the other thing I like benchmark-wise here on slide 17, they're showing support ratio. I call these support ratios. How many BDRs per rep? How many SDRs per rep? How many SEs per rep? What's the quota for a rep? I think, again, I'm worried about the data, 85 people across a very broad range, but I like the approach they're taking here.

Hey, Dave, I gotta go back to slide 16 because something jumped out at me and I don't like to be a Negative Nelly, but you talked about that 32% win rate from SAO to 1.

Yeah.

If you look at the middle of that slide, slide 16 at the bottom, it goes down. It says SAO to 1 conversion rate. It shows SMBs at 32%, but then mid-market's 30%, then enterprise at 27%. How could you any mathematical way combine those 3 and get it to equal 32%, which is only represented in the SMB category?

Ouch. And somehow they lost 2 respondents in the process. So yeah, look, I thought you were gonna say something else, right? There's a thing about this report, it keeps on giving in terms of yellow flags. I thought you were gonna say it should go up with size segment, not down, right? That would be my experience when you're doing big deals in enterprise accounts, focus, small competitors, long sales cycles, small number of competitors, right? Whereas an SMB, you have 15 competing solutions. So I thought you were gonna say, hey, shouldn't this be tilted up, not tilted down? And I was gonna say, yeah, you're right. And in fact, what you said was, hey, it's mathematically impossible to have the weighted average of 3 segments equal the maximum. And You're actually right about that as well.

So, brother Dave, you're right because I did also say my experience says there's no way that SMB close rates are that much higher than enterprise. No way.

So on to other things we'd like tracking account AE productivity. I think it's a great thing. I don't have a huge comment on the data here because I basically stopped analyzing the data personally. Right, Ray, keep going. But like, I like benchmark reports that look at AE productivity. I have a blog on this too called the Rep Ramp Chart. I like the chart on quota attainment. Well, sorry, I don't like the chart. I hate the way it's presented. But I like the fact that they're benchmarking quota attainment. And they're trying to look at, by the way, this chart prompted me to do a blog just the other day. Looking, I think the best thing to measure is 80% at 80% or percent of reps at 80%. They're looking at percent of reps at 100%, which is a very high bar in my experience in enterprise. So in that blog post that I just wrote, I tell people to look at percent below 50, above 80, and above 100. Ray, thoughts on this one? I know you had some earlier when we talked.

You know, oh, I'm so sorry. There's some type of alarm going off here in my studio. So I'm going to say one more thing.

Dave?

Okay. So Dave, that was pretty exciting here in my New York studio. We actually had fire alarms going off. Sorry to the audience, but Hey, this is real-time recording here at the SaaS Metrics Matters studio in Schenectady, New York. But let's—

I'll notice that Ray never fled for the door even though the smoke is pouring in. Ray stayed committed to the SaaS benchmarking slide.

That is how passionate I am about SaaS metrics and benchmarks. But let's go to slide 21 real quick, and because I like it. And slide 21 is all about customer success matters statistics, and it really talks about What's the average book size per CSM and what the number of accounts covered by CSM? And, you know, I do a lot of benchmarking with some of the customer success leaders. And here what it shows is as you get larger customers, you have less number of accounts. That's pretty obvious. One of the things I really want to see next year is if AI increases this, where today enterprise CSMs on median support 14 accounts.

Yeah.

CSMs for mid-market accounts support $40 million and $1.5 million. I think that's going to go up to probably 25% to 50% more over the next 12 to 24 months, Dave. So I really like that slide.

So let me weigh in on this slide because I like slide 21 too. I would just say I don't really believe the data because my rule of thumb, ARR per CSM is $3 to $4 million normally, and these are showing $1 to $2 and change. So But look, my old joke was, if you asked how much ARR per CSM should be, Gainsight would say $1 to $2 million. Everybody else would say $2 to $4 million.

Right.

Because they sold customer success software by the seat. So, I don't know. I'm suspicious of the data here. And I'm also suspicious of the number of accounts. 40 strikes me as low. They don't even have data. No, they have 100 for SMB. Sorry, it's off the chart. I don't know. As usual, I'm worried about the data here. I think this is low. My benchmark is $3 to $4 million.

Now, I know there's a slide that you really like, and that's the ARR per FTE slide.

Yeah. So slide 31. So first, there's 2 reasons I like this slide. One, I do think this is going to be a more important metric going forward because it's the kind of ultimate productivity metric. And the world cares about productivity now as much as growth. And the best overall metric of productivity is not in fact CAC ratio or CAC payback. It's actually ARR per FTE. I mean, the ultimate productivity measures, in my opinion, are burn multiple and ARR per FTE, right? All in, how much did you burn to get to a certain level? And then ARR per FTE, how much ARR do you have per employee? So I think it's an up-and-coming metric. I also like the fact that they segment it because a lot of metrics, Ray, some of my favorites don't vary much with size, CAC ratio, CAC payback period, churn rates. They don't vary that much with company size. They might vary by customer size or segment. that you're selling to, but they don't vary that much with company size. ARR per FDE absolutely does vary a lot with company size. So I think it's very important to look at this metric and make sure you're benchmarking off people in your size bucket.

Yeah, and I really liked how it increased FY22 over FY21. I can't wait to see this for 2023. I'll give you an example. In that $50 million to $100 million segment, It went from $167K ARR per FTE and then it went up to $187K. So it went up $20,000, which is about 12 to 13%. I think it's going to go up another 10% in 2023, Dave.

Yeah, I think so too. And hopefully we won't have to wait a year to find out.

You won't, because I know somebody is going to be doing that in the February-March timeframe.

Oh, really?

Yeah.

All right. So let's switch gears here to our wrap-up. Let's just talk about the reports we do use. I personally, like, if you're an aficionado, I'd look at this thing because there's some interesting stuff in it. But if I were a busy executive running a company, I wouldn't rely upon this report. So personally, I'll tell you what I like in private SaaS. I like the OpenView benchmarks. I think they're very good. I like the Benchmarkit, your stuff, Ray. And I think we both like Battery's new report. For— I'll just go through my list. For elite SaaS, I like Iconiq, but they really are looking at kind of the best of the best. And then for public SaaS, I like Meritech. Those are the ones I would use for benchmarking in various situations. Any additions or changes to that list, Ray?

No, all those are great. I would add one more, but it's more about sales and marketing efficiency. Insight Partners has a great sales efficiency report. It's an N of about 305 of their portfolio companies. They go in and they really validate the data. So that's the one I would add. for go-to-market executives, Dave.

Agreed. That's, that's another good one.

So with that, I think we should wrap up this year's breakdown of the KeyBanc Capital Markets. I recommend everyone to read it. Be very cognizant of the end. Take some of the data maybe with a grain of salt, but go ahead and read it and then go see the OpenView Benchmark and Battery reports.

All right. Take care, everybody.

Thanks, everyone. See you next week.

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.

Ahem, 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 @davekellogg. Kellogg. Schedectity, which is French for unspellable, is not our actual production location. Thanks for listening.