Facing reality - using Benchmarks in SaaS Business Planning
This post provides SaaS entrepreneurs, Business Managers and Investors with an overview of top resources for SaaS and Software benchmarks. Across those resources, we have selected 75 best practice benchmarks to make reasonable assumptions in numerous situations … when creating your SaaS business case, when finding the right growth strategy, when trying to understand your performance or reviewing an investment proposal. You can access all these benchmarks plus many more online in the Lean-Case Benchmark portal. They help you to face reality. You can apply benchmarks - either to vet your business model assumptions or to measure your actual performance against peers.
Throughout my career, I developed a strong desire to share my experience with other entrepreneurs. My goal was simple: to increase their chances for financing and success. This is why I started working on Lean-Case in 2016. I want you to avoid the pitfalls I have seen, by using the right formulas, applying the right assumptions, making the business case look appealing, and building a model to support scenarios and continuous analysis and tracking. Originally, benchmarking was an integral concept in Lean-Case but I learned that there was no single benchmarking data source that Lean-Case could leverage, but that there was a wealth of information regarding benchmarks spread across the web. However, most of this information is burried in PDF files or graphic, not vailable as data and not applying the same taxonomies to describe benchmarks. This is how the idea for a separate service developed which we originally called Lean-Marks. We decided to re-integrate Lean-Marks into Lean-Case and have plans to take it forward.
Top 75 Benchmarks for your saaS Business Case
We have selected 75 best practice benchmarks to make reasonable assumptions in numerous situations.
What are Limitations and Benefits of Benchmarks?
Benchmarking is a common practice and sensible exercise to establish baselines, define best practices, identify improvement opportunities, and understand how to compete. Benchmarking helps companies gain an independent perspective. They can understand how well they perform against peers, identify and prioritize specific areas of improvement, validate assumptions as well as set performance expectations.
Benchmarking works well when the process being benchmarked is a standard one and essentially is the same for all units (either internal or external) participating in the exercise. For example, it’s useful to compare the cost of developing the same widget, providing the same kind of online support or using the same kind of cloud service. But benchmarking is not informative when it is used to compare fundamentally different processes or products. For example, Dropbox would probably not benefit from studying SAP’s selling process, a start up would not benefit from comparing its churn rate with the churn rate of public SaaS companies such as Salesforce or Box. Be reasonable and do not compare Apples and Oranges – simplistic benchmarking using aggregate statistics only has certain validity.
We combine benchmarking with the strategic process of finding the right business focus. SaaS companies must focus on the right metrics for each stage of their product growth lifecycle.
How do I use Benchmarking in my Businesss Plan?
If I want to convince potential investors that my business idea is viable, to what extent and how should I use a benchmarking comparison of successful companies and consequently shape my plan?
Benchmarking based on available information about similar companies in other markets can be a useful way to add granularity and credibility to your business plan. Depending on how much information on these other examples you have, applying the benchmark company growth patterns, or ramp-up numbers, or market penetration can be useful.
But be careful as you do this. You should be sensitive to the factors you are considering because they come from a different time and a different market, and may not be relevant to your own business. Be respectful of these differences, and - if at all possible - adjust your numbers to reflect them. These adjustments will add credibility to your plan.
We’ve seen plans and pitches in which entrepreneurs simply apply somebody else’s growth rate or profitability to their own projections. And potential investors wonder if those projections are relevant to your business. It’s a natural reaction, so anticipate it.
So, yes, use results from similar companies to help build your early projections. But do it carefully and with adjustments for your specifics. Then, it will give your plan credibility.
Where to find benchmarks for your SaaS and Software Business
There are many great sources to find and check benchmarks online. They cover countless insights on the general business economics, funding, sales and marketing, customer success as well as product and software development.
However, they are not easy to find, they only focus on specific functions or topics, it is difficult to put them into context, they come in PDF format and they cannot be searched and compared. On such a basis, it becomes really hard to check them out and make meaningful decisions.
Searching for Benchmarks
On the Lean-Case Benchmark Portal, you can kick off searching for benchmarks with a fulltext search (e.g. enter the keyword “quota”).
Lean-Case shows relevant results for your search (see below). With the search bar on your right, you can refine your search (e.g. search by benchmark publication or searching by several keyword categories).
Each benchmarks is referenced, tagged and visually represented (see figure 3).
All benchmark sources covered on Lean-Case enjoy high social media activity and virality. The Lean_Case benchmark portal is your starting point to dig deeper into them. In the following sections, we provide a subset of benchmarks which are available on the portal.
We provide you the benchmark source, the benchmark description, the major message behind the benchmarks and tags where you find similar benchmarks. At any time, you can click on the links to find additional information provided on Lean-Marks.
If you come across other benchmark sources which we should cover, please let us know.
Benchmark Sources Covered
This is the overview of Benchmark Sources which Lean-Case currently covers.
SaaS Models and Scenarios in the Cloud
Aggregated Benchmarks for your SaaS Business Model
Periodic Tables of SaaS Metrics
“Periodic Tables” of B2B Digital Marketing Metrics, SaaS Sales Metrics and SaaS Financial & Operating Metrics
Benchmarking Public SaaS Companies
Key benchmarks of Public SaaS companies; revenue, customer success, sales, quotas, etc
Growth, Sales models, Target customers, Go-to-market approach, CAC, Contract, Pricing, Services, Sales commissions, Gross margin, OPEX, Cost structure, Churn and retention, etc
Your Daily Dose of Inbound
B2B Sales Conversion Rates – Lead to Opportunity, Lead to Deal
Annual SaaS Metric Survey Report,
SaaS and customer metrics, Acquisition, renewals and upsells, Retention and Acquisition costs, Free trials vs Freemium, Churn, etc
Sales Development and Inside Sales Reports on Metrics & Compensation
Team Structure (number of reps, territories, experience level, average tenure, ramp up), Sales Quotas (basis, Quota based on ACV, Average number of deals, Quota achievement), Sales efficiency (average number of daily dials, dial attempts and connects)
InsightSquared – New Benchmarks for Inside Sales Teams
Conversion rates, Average deal sizes, Number of bookings per rep, Sales cycles, Sales effort, Win rates, Sales cycles, Sales effort etc.
SaaS Incentive Compensation Benchmark Report
Incentive plan design, Quota size, Quota attainment, Sales attrition etc
Average Salary Ranges for Sales Jobs
Average Salary Ranges for Sales Jobs in Software Industries
Behavioral Cues of Customer Satisfaction
Customer Satisfaction by Countries, Industry, Politeness of customers, Email provider etc.
State of B2B Mobile Growth Metrics
Metrics for Mobile apps which are the next big wave in B2B SaaS
MSP Global Pricing Survey
IT services that MSPs deliver on the existing and emerging types of services they offer, incl. current service pricing and future pricing expectations
SaaS Benchmarks for your Business Plan
If you start building your business case, you have to make a few choices. Are you starting from scratch and building your own Excel model, or can you reuse an older model which you used before, or could you even use a model someone else has built? Maybe you want to task experts like us to help you build your model with simulation and reporting capabilities. However, if you are sick of Excel, you could also use a Lean-Case create and share your case.
In all cases, for any of these options, you have to deal with business assumptions which typically fall into a few categories. Benchmarks in those categories help you to make your plan better. For this post, we are applying the same categories as used by the Lean-Case service. In the following chapters, we describe benchmarks on
SaaS Benchmarks for Sales Cost and Sales Targets
Depending on your Sales Model and your location your Sales Cost can vary significantly, e.g. the cost for a Direct Field Sales Rep are significantly higher than for an Inside Sales Rep, the cost of a Sales Manager in San Francisco is significantly higher than in the Mid West. It is relevant to capture the yearly total-cost-to-company in your sales plan which depends on your Sales Model.
If you are selling via a direct salesforce, you must capture the fully loaded cost of the Salesforce. If the Sales Unit represents a partner channel, you must capture the commissions you pay to the partner. If the Sales unit represents an inbound/outbound sales team, you should capture the total cost of that team.
And last but not least, the quota of a Sales Unit drives its performance which again very much depends on your sales model as well as your cost of selling
SaaS Benchmarks to calculate the Average Contract Value
The Annual Contract Value (ACV) is the average value of a service contract paid for 12 months. It is a good indication to understand Average ACV in different industries and for different solutions.
The ACV can depend on various factor
Benchmarks on the customer lifecycle are relevant for 2 phases – to get-a-customer as well as to keep-and-grow a customer..
The Get-a-Customer phase is divided into two stages to convert a lead into a paying customer:
Benchmarks to get leads
The Get-a-Lead phase defines the cost to acquire a lead across lead channels.
Cost of Leads can depend on a number of factors:
Benchmarks to convert leads into deals
The Convert-a-Lead phase is defined by pipeline stages and the conversion parameters to convert leads from one pipeline stage to the next – and finally into paying customers. Conversion Parameters can also depend on a number of factors,e.g.
The Keep-and-Grow phase is split into two stages to maximize retention and profitability deals with paying customers
Benchmarks to retain customers
The Monthly Churn Rate is the percentage of Monthly Recurring Revenues which are “churning,” that is, being lost on a monthly basis. In general, there is an important distinction between “Revenue Churn” and “Customer Churn”. Whereas Revenue Churn can result from customers downgrading their subscription, Customer Churnresults from Customers who discontinue their subscriptions in a given month.
On the other hand, you have to consider the Monthly Expansion Rate which is the percentage of increase in monthly recurring revenue received from existing customers who increase their purchases of services. This can be achieved by selling more units within the customer’s plan or by the upgrade of a customer into a higher service tier. Ideally, expansion rates are higher than churn rates – delivering a negative net churn.
Benchmarks to deliver profitably
In order to measure profitability, Gross-Margin is a key metric. Gross Margins primarily depend on the Type of Revenue (e.g. Recurring Revenues vs Professional Service Revenues). The Gross Margin on Recurring Revenues is the percentage of recurring revenues retained after paying the direct Cost of producing the services which were sold. This includes the cost of customer on-boarding, hosting and service.
The Gross Margin Professional Services is the percentage of one-time professional service revenues retained after paying the direct Cost related to that service. This includes the cost of one time services such as service setup, service integration or training.
Obviously, Gross Margins also depend on the scale of the company.
Benchmarks on Key Metrics cover Benchmarks to understand the Key Metrics Customer Acquisition Cost (CAC), Customer Lifetime Value (CLTV), Payback and the CLTV/CAC Ratio.
The Benchmarks listed below particularly help you to understand the short-term and long-term viability of your case:
This post provides SaaS entrepreneurs, Business Managers and Investors with the top 75 best practice benchmarks for your SaaS and Software business. Within this chapter we are covering a few operational Benchmarks.
There are many more operational benchmarks which you can look at and explore directly on Lean-Marks. We picked three categories
If you want to look up definitions of SaaS Metrics while reading through the benchmarks, please refer to our post Lean SaaS Metrics – The Definitive Guide to create business impact.
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