This YouTube talk (by Jason M. Lemkin) argues SaaS companies must prioritize efficiency post-2019 "free money" era, using specific metrics (payback period, adjusted payback, gross margin, LTV/CAC) and cross-functional alignment to manage channel- and segment-level costs, hold teams accountable, and scale more efficiently.
So let's talk about to actually do this efficiently. What are some of the things you guys are focused on? Yeah, yeah. I mean, yeah, the free money days, as you all know are somewhat behind us. And you see this playing out just as context. If you look at SaaS companies, the amount that they're spending on sales and marketing as a percentage of revenue, this was as high as over 50, 55% in 2019, kind of the peak of spend free money investment growth at all costs. That's down to 30% in 2024 just because it's not sustainable and investors won't tolerate that level of lack of return. Also, if you think about payback period, you look at top quartile SaaS companies versus bottom quartile. Top quartile have 3x shorter payback period than the bottom quartile and 7x higher valuation. So, so this is really important. Now. Some of the things we're thinking about or like how I think about managing this first of all is really getting crisp and clear on what are the metrics you're gonna be looking at and getting alignment across the entire company. CEO, cfo, CRO, sales or sales organization on those. So for us it's payback period, gross margin, adjusted payback period, which takes into account all the costs, the cost of acquiring a customer, when are you getting that back, net of all costs to deliver the product. And then second is LTV cac, that can be inflated because you can build out, blow up your LTV calculations. Very sensitive on assumptions. So the payback period for us is the key. And then we've gone in and looked at that. What are our expectations per channel per segment. And to Gene's point earlier for enterprise that's going to be longer and really getting alignment up front on what are the early signs of success you need to see and how do you build that over time. You need to be watching it closely. And then what we've done is break down for every segment, for every channel, giving visibility to my go to market teams. So sales, marketing, solutions, engineering, customer success, operations, we break down for let's say like SMB Channel Partners or SM mid market sales, what is the cost breakdown, how much of that is se, how much of that is sales, csm. And so they're feeling the tension and before asking for another headcount or asking for another overlay resource, they're like they're managing it themselves and acting like an owner. And we've gotten really creative to say hey maybe we can scale more instead of this ratio we can expand the ratios to be more efficient and more scalable and then holding people accountable. We look at this in every single revenue call I do, every forecast call, we're seeing the metrics that we're managing to them, which is critical to be able to allocate resources and make decisions. Also a big fan of math. So I think that the number one thing to get right is an operating model.
