Key Takeaways from the 2022 KeyBanc SaaS Metrics Survey

KeyBanc Capital Markets (KBCM) recently published their 13th annual private SaaS company survey.  This post has three purposes:  to let you know it’s out, to provide you with a link so you can get it, and to offer some quick takeaways on skimming through the results.

The first thing to remember about this survey is that it’s private SaaS companies.  Unlike Meritech Public Comps, where you can see metrics for the best [1], public SaaS companies, this private company data is somewhat harder to come by (the only other source that springs to mind is RevOps Squared) and, for most of us, it provides much more realistic comparables than Meritech [2].

The second thing to remember is that there are a lot of smaller companies in the sample:  about 20% of respondents are less than $5M in ARR and about 40% are less than $10M.   (The overall median is $13MM.)  Depending on who you want to compare to, this may be a good or a bad thing.  In addition, for most of the metrics they exclude companies <$5M in ARR from the calculations, which brings up the overall median for that set to $17.6M.

Net:  this is not VC-backed SaaS companies (62% are), this is not IPO-track SaaS companies (presumably some small subset of that 62%).  This is all private SaaS companies, including 22% PE-backed and 13% boostrapped.

One of my new benchmarking themes is that people need to pay more attention to matching their benchmarks with their aspirations. If your aspirations are to raise money from top VCs at a good valuation, my guess is you should be thinking 75th precentile of this data set; if they’re to IPO, you should be thinking 90th.

That said, let’s meet the Joneses, who have median:

• ARR growth of 31%, lower than I’d hope.
• Forecast 2022 ARR growth of 36%, so they’re planning to accelerate.  Everyone’s an optimist.
• Expansion ARR of 46%, higher than I’d hope.
• Net dollar retention (NDR) of 109%.
• Customer acquisition cost (CAC) ratio of 1.2 blended, 1.8 new, and 0.6 expansion, in line with my expectations.
• Gross churn of 14%, in line, perhaps a tad high, relative to my guess.
• Available to renew (ATR) gross churn of 10%, but it’s hard to understand how ATR rate can be lower than gross churn rate [3].
• Margin profile of 77% subscription, 73% blended.  In line.
• Sales and marketing (S&M) expense of 40% of revenues.  They’re frugal, but they’re not growing that fast, either.
• Free cashflow (FCF) margin of -5%.
• New ARR per seller of $673K, which I if I understand, is what I’d call sales productivity.
• Contract length and billing frequency of one year.
• ARR/FTE of $143K, lower than I’d guess (for public companies it’s nearly double that).
• Valuation of 6.1x ARR at their most recent round (in 2021 or later).

Since I don’t want to lift too many of their slides, I’ll extract just two.  The first shows S&M spend as a function of growth rate.

If there’s one area where you really need to look at metrics as a function of growth rate, it’s customer acquistion cost and, by extension S&M spend, on the theory that in enterprise SaaS you need to invest up front to grow.  Therefore a high-growth company is theoretically carrying the cost of as-yet-unproductive capacity where as a steady-state one is not.  You can see this pretty clearly here where the sub-20% growth companies spend 27% on S&M, which surprisingly drops to 17% at the 30-40% bucket, but then begins a steady upward march to 59% for those growing faster than 80%.

The second discusses a concept I’ve called The Rule of 56789

Here, KeyBanc is saying roughly what I say, which is [4]:

• 5 years to $10M (5.6 years, per KCBM)
• 6 years to $20M (7.1 years, but to $25M)
• 7 years to $50M (7.6 years)
• 8 years to $75M (they have no threshold here)
• 9 years to $100M (9.3 years)

I’m glad they’re now tracking this, along with net burn rate (aka, cash conversion score) though I’d say their implied cash conversion scores are more efficient than I’d guess based on my experience and Bessemer’s data.

Overall, this is a seminal report for SaaS companies.  Every private SaaS company should read it.  Grab yours here.

Notes

[1]  In the sense that even a “bad” public SaaS company (dare I suggest Domo or C3 as two of my favorites to scrutinize) was still good enough to get public in the first place and ergo creme de la creme when viewed more broadly.

[2]  As I said in a recent speech, it’s the difference between benchmark off all SAT test takers and Ivy League applicants.  See slide 13 of this presentation.

[3]  KBCM calls this non-renewal rate, but I think it’s 1 – ATR churn.  The reason it’s hard to believe it’s lower is that it should be the same numerator over a smaller denominator.

[4]  I was looking at European 75th percentiles and they are looking at worldwide (but US-weighted) medians