The Ledger
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Rule of 40 is now the metric most correlated with SaaS valuation
“But it's now the number one SAS metric as correlated to enterprise value in the next 12 months revenue. A year ago, it was number five. Growth is still number two. But balanced growth with profitability is number one.”
CAC ratio is superior to the SaaS Magic Number
“CAC ratio to me is superior to the rule of 40. Why? I'm sorry. The SAS magic number. Why? Because you can measure how much sales and marketing investment you need to make for one dollar of new name ARR, and How much sales and marketing, customer success invest…”
CLTV to CAC ratio is meaningless for $1M ARR SaaS startups
“If someone says, I'm concerned about your CLTV to CAC ratio at a million dollars, you need to wonder why you're working with that person, because it's pretty meaningless”
SaaS customer acquisition efficiency typically drops at $7M to $15M ARR
“When you hit kind of 10 to fifteen million, it gets more difficult to acquire new customers. Why? You've hit the cream of the crop. Now you might be getting those early majority buyers. If you look at the crossing the chasm technology life cycle adoption curve…”
Rike: CAC Payback Must Always Be Gross Margin-Adjusted
“Payback period should always be a gross margin adjusted calculation.”
Rike: CAC Payback Correlates With ACV Rather Than Total ARR
“Whether you're a five million dollar ARR, SAS company, or 20, that has a lot less correlation to CAC payback period. Than the size of your average annual contract value.”
Median CAC payback for $100k+ ACV SaaS is 22 months
“Because if you're at the hundred K or greater, CAC payback period, 22 months at median.”
Ray Rike: Gross revenue retention must only measure renewal-eligible cohorts
“The best practice for gross revenue retention is you only measure it for that cohort of customers that actually had an availability to renew.”
Rike: Early Seat-Based SaaS Companies Typically See 104% to 110% NRR
“If you are a true annual subscription, seat-based or whatever other, you are going to be more in that 104 to 110%, especially early on.”
Rike: CLTV:CAC is meaningless without at least one to two renewal cycles
“If you haven't had at least one, but more and more appropriately, two renewal cycles, this is a meaningless metric. Why? Because you really don't know what your churn rate is.”
Median SaaS CLTV to CAC benchmark is now 4x
“You can see that kind of four is the median. It used to be three, now it's four.”
Rule of 40 explains 44% of SaaS revenue multiples
“So 44% of enterprise value to next 12 month multiples can be explained by rule 40 versus revenue growth.”
Salesforce cut sales and marketing to 36% of revenue under investor pressure
“Their sales and marketing expense to revenue four months ago, 46%, with a 17% growth. So now they're at 36%. Why? Because investors said your sales and marketing expenses are way too high.”
Rike: Median SaaS Blended CAC Ratio Was $1.33 in 2022
“In twenty-twenty-two, companies were investing about a dollar 33 of sales and marketing expense fully loaded, that means comp, benefits, everything, to get one dollar of new or expansion arr.”
Rike: Median New Customer CAC Ratio Is $1.58
“New looks at how much sales and marketing expense did I invest to pursue new customer logos and ARR from those new customers. So you see it's much higher. It's a dollar 58. Because it's harder to grow ARR from new customers.”
Rike: Median Expansion CAC Ratio Is 69 Cents
“But if you go to expansion cap ratio, which is Organic expansion, so if you have a usage-based pricing or PLG, but it's more upsells, cross-sells, where you actually have a sales-led motion. Look at that median. 69 cents.”