onlycfo.io · 2024-03-28 · 798d

How Profitable Should SaaS Be?

The article analyzes SaaS profitability drivers by decomposing gross margins and operating expenses, demonstrating how gross margins set a profit ceiling while operating leverage from customer retention enables OpEx compression at scale. Using benchmarks from 75 public cloud companies, the author shows operating expenses should decrease significantly (24 percentage points) as companies mature, with S&M seeing the largest variance between high-growth and scaled businesses.

10 metrics· Cited 0× in the knowledge base ·Open source ↗

Metrics in this report

Blended CAC Ratio

1.20dollars per ARR dollar

median

SaaS cohort 2021

Existing Customer CAC Ratio

0.61dollars per ARR dollar

median

SaaS cohort 2021

Free Cash Flow Margin

21percent

median

Top 10 public cloud companies

G&A Expense

15percent

target

Scaled public cloud companies at significant revenue scale

Gross Margin

76percent

median

Top 10 public cloud companies

New Customer CAC Ratio

1.78dollars per ARR dollar

median

SaaS cohort 2021

Operating Margin

-7percent

average

Top 10 public cloud companies

Revenue Growth Rate

22percent

average

Top 10 public cloud companies

Revenue Multiple (EV/NTM Revenue)

15.6multiple

average

Top 10 cloud companies by revenue

S&M Variance (High-Growth vs. Scaled)

18percentage points

Difference between high-growth and mature cloud companies