Top Take Aways from ICONIQ | Growth 2023 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, the founder and CEO of Benchmarkit.

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

And together we are the Metrics Brothers.

And quite a pair at that. Ray, what do we have on store for this week?

Well, last week we talked about NRR, net revenue retention, but a new report had just come out and that was the iconic 2023 Benchmark Report. So I thought it'd be a lot of fun to talk about after we read that, some of the interesting things we saw in that, because it's a really good report, Dave.

Okay. Yeah, I had a chance to read this one and went pretty deep on it. I like the report. I like that there are more SaaS benchmarks out there. So I think that's a good topic for this week. Okay.

But before we do that, let's go ahead and get a quick word from our presenting sponsor, Maxio. 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 Wright 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. Okay, Dave, why don't you tell us a little bit about, at a summary level, a little bit of what this report contains?

Okay, so this report is published by Iconic Growth. It's entitled The New Era of Efficient Growth. It's published, it's fresh off the printing press. It's published in August of 2023, so not quite fresh, but pretty fresh off the presses. It's relatively long, it's 69 pages. It covers, I think, 96 companies, which includes what I'm— there's some interpretation issues here, but I think it's the vast majority of the Iconic Growth portfolio, plus 13 select public companies based on some IPO performance criteria that they decided to include. I would say these are by and large top-tier companies. So one of the things we talk about, Ray, in benchmarking is like, hey, be careful you understand who you're benchmarking to. And here we really are benchmarking against very, you know, elite brand name companies. If you look at slide 8 of their report, you will have heard, I think I've heard of virtually every company on that slide. So this is really kind of an elite benchmark set. About 75% of them sell to mid-market or enterprise. About, uh, 75% of them are private.

Yeah, and the other thing I thought it was very interesting, the fact that they actually included those 13 public companies, because often I hear you talk about it's like, you know, we have all the Stanford and MIT grads. So this really is going to be top-tier companies in this report.

Yeah, I, I did— look, any VC that publishes a metrics report tends to base it largely on their own data. And I'm not sure why they decided to include 13 public companies. Maybe it was to help anonymize the data set a little bit. Maybe it's just because all their companies want to go public, or the vast majority of their companies want to go public. I'm not sure. But I do think, you know, our audience should know, beware, when you're reading a study published by a venture capital organization like at Balderton, we have published some benchmark numbers from time to time, you're looking at a pretty elite set. It's people who think they can, you know, well, at least in Balderson's case, is people who give us data and who think Balderson might give them money back. So a relatively high group of companies. Here, this is not even people who just— and I'd say Insight, by the way, I think we talked about that report in the past. I think they use companies who tried to raise money from them. So it was kind of anyone who gave us data as opposed to just our portfolio. And I think here with Iconiq, it's basically The portfolio, all of it where quote unquote data was available, as well as 13 additional companies. So when you look at these benchmarks, the first question is always, who are we looking at again? And the answer here is a pretty elite set.

You know, the other interesting thing that I thought they did, which as I thought about it more and more and talked to you about it, they did some of these benchmarks over the last, you know, 1, 2, 3 years, but then they did some of the other benchmarks over a decade period because I think they were trying to smooth and normalize Yeah, I think this report can be confusing at times because at times it's presenting what very clearly appears to be like this half or this quarter benchmark data, kind of like any other benchmark report.

And at times they, they step back and they kind of want to be that, what, you know, timeless. As I would say, a Brooks Brothers blue Oxford shirt is a timeless piece of clothing, right? You could wear it in 1965, 1985, 1995, 2005. You could always get away with wearing one. I think that's what this report is trying to do. I think they're trying to get on some of these slides that same timelessness. Hey, you know, whether or not we're in a peak or a valley, whether or not we're in a bubble or a burst, we think an NDR of 110% is, you know, real good or median. I can't remember which it was. We'll see in a minute. But I do think there's that aspect to it.

Yeah. In fact, you know, if we kind of summarize some of the key takeaways, one of the things I thought was really interesting was They looked at net dollar retention and they looked at trends from 2017 up to first half of 2023. And we saw some of those high-flying days even back in 2017, again in 2021, NDR numbers in at 120%, 130%. And now it's at a median, it's 105% in first half of '23. So what that tells me is that retention and expansion of customers is getting harder over the last 2 to 4 quarters.

Yeah, you can see that, uh, Ray's on slide 13 for those following along with the actual report. And one of the, you know, like this is their executive summary, top finding, growth is down, NDR is down. Um, and you can see it, and NDR is averaging around 105, which in my mind is actually relatively low for this elite set of companies. Uh, I would have guessed more 120, 130, but, and, you know, I would have been right in, in 2017, or even I would say 2019 or 2021. But, but yeah, NDR is definitely down. I think it's one of the big takeaways. In fact, and I think that's coming from— actually, where is that coming from, Ray? Is NDR down because we have less expansion or more churn or both? I can't remember.

It's actually, it's balanced. And in 2023, the decrease in NRR is coming more from downsells than pure churn. It looks like a lot of companies have said, hey, I have 25% less people, so I need 25% less seats. So it flipped. Last year, it was primarily due to churn. This year, downsells.

Got it. And I think that's consistent with what I'm seeing, which is in a lot of SaaS categories, you need the software. I'll just do my old company, now called Planful. You know, every company needs a planning and budgeting package, but I would imagine you try to tighten the strings when we're in a downturn, right? So it's less about discontinuing, or look, you could drop to a cheaper package and that would show up as a loss. Uh, for any given vendor. But I think the first-order reaction that most companies are seeing right now is shrinkage, which would put pressure on, on expansion, right? You're going to expand less or you're not going to expand at all and just shrink. And it seems like that's what the data is showing here.

Yeah, totally agree. Hey Dave, you know, we've 20 minutes on these episodes, let's keep moving. You really like their Enterprise 5, and for anyone who's got the iconic report, they first really mentioned this on page 16. But are a couple of those metrics jump out at you as really interesting?

Yeah. So look, what I like about the Enterprise 5 is first that they kind of picked them and then they put a stake in the ground and said, hey, and we're on slide 16, by the way, you know, we think these are kind of the big 5 metrics for SaaS companies. And they are, you know, first year-over-year ARR growth, excellent choice. NDR, another excellent choice. Rule of 40, net magic number, which I'm not really sure you need the word net there, and ARR per FTE. Now, the other thing I'll say I love about this report is they produce kind of a companion document called the Iconiq Growth SaaS Glossary.

Yeah.

And a lot of people don't do this, right? And they'll just throw terms out or maybe they'll throw a footnote definition. But these guys have a pretty rigorous glossary about how they calculate SaaS metrics. And there are cases where I disagree with how they calculate them. But that's not the important part. The important part is they tell you how you do it. The other thing I like about this slide is it shows you across different size buckets what they think kind of median, i.e., I'll just say average to be sloppy sometimes, and then top quartile, which I'll call gold standard, right? Here's what they think kind of median and gold standard is. across these metrics and how they vary as a function of size. And when I look at this slide in particular, I'll tell you what strikes me, that some do vary as a function of size, like row 1 and row 5, right? ARR growth, rule of large numbers, the bigger the size bucket, the slower the growth, right? So for top quartile, for gold standard, it drops like the progression is 240, 130, 100, 70, 60, 70, right? So that kind of drop. And then ARR per FTE, you see the inverse, which you would also expect. Right. It goes up across the size buckets from 135 to 190 to 215 to 235 to 255 to 345. Right. So that's expected behavior. It's good to have the number. The fun part to me is the ones that don't. And the middle 3 metrics don't vary a heck of a lot as a function of size. NDR goes between 110 and 120 as a function of size. Now I'm switching to median just because they put it in green. It brings out to the eye. Rule of 40 varies from 25 to 45. Okay. 15 in one bucket, but it's not varying a ton. And then the Net Magic Number is varying from like, I'd say roughly Roughly 0.8. It's hovering around 0.8, up at 0.9, down to 0.6. And because I like to look at that one upside down, let me just give you the CAC equivalence there, which is around 0.6 CAC ratio, because you have to invert that, uh, 0.8, because the CAC ratio is the inverse of the magic number, as you know. So those are my takeaways on that slide, Ray. Did you see anything?

You know, one thing jumped out at me more than anything, and once again, iconic, kind of some of the best companies in the world. That at $100 million growing to $200 million, they actually expect your Rule of 40 to go down because they have $50 million to $100 million at 25% at median. And then at the next level of growth, $100 to $200, it goes down to 15%. So I'm like, ah, they actually think it's going to be harder to maintain growth here. So you're going to overinvest, be less profitable to get to that $200 million and above. So that jumped out at me, Dave.

Yeah, it's interesting. Um, the other thing I should mention here, by the way, is remember we talked earlier about the, the, the blue Oxford button-down shirt? I think this slide is that, because all the numbers are round, right? And it's not clear what the time is on the data if you look, if you read the footnotes. So I think this is them saying how we at ICONIQ, given our decade of data in this area, here's what we think On an average day, right? Not in super fair weather or super foul weather, but just on any given normal day, if you walk in and you're a $150 million company and you say you're growing at 70%, we go, wow, you're top quartile. And if you say we're growing at 50%, they go, good, you're above average. I think that's what these are. It doesn't look like benchmark data to me. It looks more like a rubric or, okay, you know, a kind of a scorecard.

Well, it's funny that you say rubric, Dave, because if you go to slide 21 on the iconic report, It talks about the resilient— resiliency rubric, and I know there's a couple kind of metrics there you were really intrigued by. Do you mind kind of just giving your initial takeaway on page 21?

Sure. Uh, there's a couple things that I see here. So first, this notion of a quick ratio. You know, when I went to business school, that was a liquidity ratio. I think it was current assets divided by current liabilities, or maybe the other way, but it was about liquidity. Can you pay your bills? So I think it's misleading to call it a quick ratio. But I love what they're measuring because their definition of quick ratio is new ARR divided by churn ARR. So basically the ratio between what you're adding and what's leaking out. And their number hovers between 5 and 6. 4, 5, 6 is a typical ratio. And I think that's good. And I think it's a nice— I like simple SaaS metrics. This one is pretty simple from $25 million and up. It's either 5, 6, or 4. So it's in a pretty tight range.

Yeah.

And it says if you're leaking, put it this way, if you're not selling 4 to 5 times what you're leaking, you've got a problem. And those are median numbers. The top quartile is quite a bit higher. It's more like 10, 11, 16, and it varies a lot more. But in any case, kind of new and up-and-coming SaaS metric, the, I don't know what to call it, but they call it the quick ratio. The other one that, you know, when I look at their CAC payback, they're awful long, Ray. And I can't remember why, 'cause I don't know if they're doing something funny in the calculation there. But those numbers strike me as long. And then their productivity ratio, this is an interesting metric. When I first looked at this, I was like, look, the idea of a productivity ratio is cool. And they're taking ARR per FTE, which I do view that as a productivity metric. And then they're dividing it by OpEx per FTE. And the first funny thing is that the FTEs cancel out. Literally, mathematically, you could just take ARR and divide it by OpEx to get this ratio. So that's my first, like somebody didn't do the last step in the algebra to simplify the equation. And then you look at this ratio And, you know, it does vary over time. It goes up over time, which suggests that you're getting more ARR per employee per what you're spending. That all makes sense. I don't know. I like it. I think it's intriguing. I always like people creating new metrics, but I'm not 100% sure what it means. And I'm pretty sure you don't need to do it on a per FTE basis.

Yeah. And I would hope that as companies scale from $20 million to $100 to $200, that ARR per FTE is going up. And OpEx per FTE is going down, Dave.

Yeah, and that's what we're seeing in the numbers there, I believe. So it's an interesting one. It requires deeper study. Burn multiple, I haven't looked at the numbers, but that's another top metric I look at. Top line attainment, also known as the CEO employment metric. They don't really have any data there. And I think it's always a very interesting thing to measure 'cause it's partly measuring growth and partly measuring game theory, right? Like how good are you at negotiating a plan? And then burn multiple, of course, is just relationship between cash burn to get new ARR And those numbers vary enormously on the median there. So I'm a little surprised. You know, I thought the rule of thumb was, you know, hey, if you're burning a dollar to get a dollar, it's actually pretty good. If you're burning $2 to get a dollar, it's getting pretty bad, but we might still invest in you. And if you're burning less than a dollar to get a dollar, that's great. I think what's going on here, because these are elite companies at scale, that a lot of them are generating dollars. And therefore, depending on how you look at the burn multiple, it's potentially infinite, I think.

Yeah.

Or negative. I don't know how they do that. I have to look at the glossary.

Yeah. And actually burn multiples, once you get up to $100 million and above, you need to be less than 1. And that's kind of, I think David Sacks at Craft Ventures says the same thing, but I want to go to another one really quick. And there's a lot of talk about this and it kind of talks about what are people paying more for? Is it profitability or is it growth? And I believe that slide 15 of the ICONIQ report, and they call it the trade-off between growth and efficiency. And basically what they did was some linear regression analysis of enterprise value multiples and the impact of revenue growth using a revenue growth coefficient versus a free cash flow. And basically what it says, Dave, and this is pretty logical, in December of 2021, right, we were paying about 31.8 as a revenue growth coefficient against growth versus 4.9 for free cash flow. And over a year, so by December 2022, We were paying more as a multiple for free cash flow than we were for growth. And now in June of 2023, which is when they report to, we're paying twice as much for a percent of growth than we are for a percent of free cash flow. Did anything jump out at you on that one?

No, I think you analyzed it pretty well. You increasingly see these 2-factor analyses on Rule of 40, so I don't have anything in particular to add there. I did want to switch, Ray, to do one more, which is to talk about slide 32, if we want to go there. Sorry to be jumping all over the place here, guys, but this is showing median LTV to CAC. And this one grabbed me because these numbers are incredibly low, right? To say the median LTV to CAC for enterprise software companies, especially an elite enterprise software company, right, with a kind of Rule of 40 score of around 50, right? Well, you know, ARR growth rates above 50 as well. I don't get it. I don't know how they're getting this 2.6. I didn't have time to go look at the glossary. Does anything leap out to you here?

Well, the one thing that leapt out at me was the CAC payback period, because that's critical. That's the denominator, right, of that LTV to CAC. And, you know, they're looking at last year 31 months, this year 29 months. You know, a lot of times, and if you look at like Bessemer Ventures, they're going to say, you know, good is 24. We're talking about enterprise companies. Good is 24. Better is 18 and best is 12. So I would really be interested to see how they're actually calculating the median CAC payback period because it seems on the high end. And maybe it's correlated to growth, Dave. Maybe that's why it's so high.

Yeah, it's possible. I, I don't know for sure. And, uh, you know, the purpose of this episode is just to give you guys a, you know, our reaction to kind of metrics geeks flipping through this thing. We each read it a couple times and what leaped out. Um, and this leaped one at me too, Ray. Uh, and I've not yet gone through the glossary to try and reconcile it. Uh, the last time I saw something like this, I can't remember what they're calculating it on. Uh, were they doing it on gross margin? Because I don't do CAC payback period on gross margin. I, I do it on revenue, I believe. No, I do it on gross margin. Sorry. So I don't know.

No, we do.

Yeah, we both do gross margin. So I don't know what's going on here. I don't know why it's so high. We need to go take a look at the glossary. But there's a couple of slides, Ray, that I think we could tell the audience to keep a heads up for. This is one. Like, I wouldn't walk into a board meeting and go, I rock because my CAC payback period is 27 months and ICON says that's better than average. I don't think that's going to get you the reaction that you might expect. There was another one. I don't know if you—

It's slide 28, Dave. Slide 28.

Thank you, Ray. Yeah, this slide. You're not— do not walk into a board meeting and say we're underfunding expenses because we're not spending 175% of revenue on OpEx. That's a good way to get a pretty negative reaction from your board. What do you make of this slide, Ray?

You know, I'd have to really understand who these companies are and how they're growing, because if you look at 2022 number, they say it's got an N of 45, the median ARR is 41. And as you know, Dave, I look at benchmarks every day, so I probably have a biased opinion. But they said the median for sales and marketing in that cohort was 101% of revenue. And that just seems a little higher than what I typically see.

Look, Ray, I would expect, given this is an elite set of companies, to be driving higher growth, higher burn, uh, and higher OpEx as a percent of revenue. I just wouldn't expect it to be this high. So, so something to me is off. I mean, in the benchmark data, Ray, what, what do you show for— do you— I know you benchmark OpEx as a percent of revenue. What's either median— is this median? What's either median or top quartile?

Well, I do it by, um, each thing, so I have to add it up, but it depends on the size of the company. But let's use a $50 to $100 million company. It's typically around 42% for sales and marketing, about 25% for R&D, so that's 67%, and about 20% for G&A. So that gets you up to like 80% to 87%, but not to 150% or 200%.

So we're kind of off by a factor of 2 relative to The Benchmarkit benchmarks that Ray produce. And by the way, Ray's Benchmarkit, in my opinion, are similar to other sources. So this to me is kind of off by a factor of 2. Maybe it's the sample set. I'm not sure. We're going to need to probably lob a call into a friend at Iconiq to figure out what's going on here. But net-net, for the audience, I would not walk into a board meeting and say, this board is underfunding our company because we only spend 170% of revenue on OpEx. That's going to be not a winning argument. Uh, in my opinion.

Yeah, let's wrap up with one last slide because I found this really interesting. And, um, it was— it's slide 24, and it talks about new ARR distribution between new logo and existing customer expansion. And, you know, a few years ago we'd think about 70/30. I was thinking it was like 40 to 42% this year from expansion and still, you know, majority more than 50% for new. But this says And over the last 4 years, it basically says it's 50 to 52% of gross ARR growth is coming from expansion and less than 50% from new. Dave, how does that align with kind of what you've seen traditionally?

You know, these are larger companies, right, than a lot of the ones I work with. They are definitely elite companies, but I'm surprised on this one. I— my rule, as we've discussed in another episode, is I call it Dave's Rule of 30, which is 30% of new ARR should be from expansion. And my argument is much less than 30%. And it's like, hey, maybe you're ignoring your installed base a lot more than 30%. And hey, why isn't there more new logo? And this is just a rule of thumb, but they're basically saying my rule of 30 should be a rule of 50. And by the way, their data hasn't actually changed. Their data is, as you point out, remarkably constant across the years. And that's a surprise because I would have expected Right, in this climate, that expansion to go up. But I saw it like from memory, it was— I was surprised how constant it was. Uh, well, actually it is growing, isn't it? Actually, hang on.

Look at slide 24. So everybody, if you got the iconic report by now, look at slide 24.

Yeah, that's the one I was talking about first to deconfuse the crowd. I was talking about slide 24, which is, hey, you tell me expansion is, you know, running 40, 50%, I'd be like, okay, because it used to be 30%, right? And they're saying, no, it's always been 50%. And that's the part that was shocking to me. Now, Ray, you think you may have found something confusing?

Yeah, slide 38. Slide 38. And sorry to the audience because I missed this before as we were doing the prep for this. There it shows something that feels more normal, which is— but it's not by year, Dave, it's by size of company. They say if you're less than $25 million, it's 29% from expansion. But by the time you get to 200 million, it's 58%. But I don't know exactly what timeframe that is.

Got it. I think this may be another case of where they're kind of doing the timeless analysis. Remember we said at the beginning that it appears sometimes they're showing regular benchmark data and sometimes they're stepping back and saying, hey, forget short-term periods, just kind of on average over the decade we've been doing this, this is what it looks like as a function of scale. By the way, I do work with a lot of $20 million-ish companies and they're right on my rule of 30 number. They're saying it changes more dramatically than I thought it did going up. But look, I don't work with that many $100 billion-plus companies. I work with some. And by the way, the ones I've seen are bigger. So I actually like this chart, Ray. I think it helps explain, but I'm not sure how well it fits with the other one unless they don't have a bunch of small companies in the sample, which is also quite possible.

Well, what it says, I'm looking at the N here in the small, the N is 46. And at the very top, which is greater than $200 million, the N is 19.

So I'm having trouble footing those 2 slides, which is something Ray loves to do, uh, and, uh, we'll let him go do that offline, I think. But I think we're out of time for today. Uh, it looks like Dave's rule of 30 has survived for, uh, $25 million and less companies. Uh, and as it gets bigger, it goes up. We expect that. And the thing we didn't really see there on the earlier slide was just that it changed a lot as a result of the downturn. which is not consistent with my experience that, that people are relying more on expansion.

And Dave, a little plug here for SaaS Talk. We hit 11,000 listeners last month, so hopefully maybe one of the iconic growth executives here like Christine Edmonds, who's the head of portfolio analytics, maybe she heard this and she could reach out to us and help clarify some of the information that we kind of just didn't totally understand today.

Yeah, we'd love to do that. And, uh, I agree, I'd love to have a chat with them because it's important to really understand these benchmarks. And again, the purpose of this episode, folks, was just to I don't know, just talk you through it. First and foremost, let you know about the report. Second, let you know how 2 people who do this, you know, who think about metrics way too much— does that describe us, Ray? So, how 2 people think about metrics way too much, how we react to it. And we don't have every answer, but if we get some, we can come back and provide you with that information.

Dave, as always, I can never keep myself to 20 minutes with you because I am a metrics geek. But thank you, and thank you to our listening audience.

See you next time. The Metrics Brothers AI, SaaS, and More is a production of the Metrics Brothers Growth and CAC and a member of the Bench Market 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 @DaveKellogg. Kellogg. Schedectity, which is French for unspellable, is not our actual production location. Thanks for listening.