SaaS companies: sales and marketing, R&D spending (as a % of revenue) and revenue growth With a shift in focus from growth to profitability, this rule can still act as guiding tool with increased weight on EBIDTA. This growth has been accompanied by fast-paced spending, with some companies investing up to 20%–30% of their revenue on R&D and another 40%–50% on sales and marketing.įor high growth SaaS companies investors often use the rule of 40, which rewards both growth and profitability as a valuation metric. Many software-as-a-service (SaaS) companies founded in the last decade saw revenue grow by 20%–30% annually (Figure 1). This is likely to require a mindset change for an industry that has been boosted by the adoption of digitization across all businesses, with companies relying on software to make them more efficient and innovative. The industry now finds itself needing to shift to improving cash flow, rather than just revenue and customer growth, with a product-led focus on which offerings will resonate with future customers This focus can help inform the tough decisions on R&D spending, engineering efficiency and infrastructure footprint that are needed to set up a leaner cost structure as growth wanes. They are coping with a downturn that has caused the loss of trillions of dollars of market value and tens of thousands of jobs. Software companies that for years have focused on rapid growth are being forced to adopt a more defensive concentration on value creation.
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