4 Takes on the State of SaaS from the 2020 SaaS Benchmarks Report
By: Emily Brungard
Tags: Startup, Software, Product, Venture Capital, SaaS

4 Takes on the State of SaaS from the 2020 SaaS Benchmarks Report Emily Brungard Follow Nov 19 · 4 min read

In many ways, 2020 has been the best year yet for SaaS — the very business model of SaaS lends itself well to uncertainty. Its flexibility has led to more IPOs, more revenue, and more interest in SaaS than ever. This year’s SaaS Benchmarks report from OpenView and a number of partners, including High Alpha, is a window into the SaaS industry during a year like no other. The majority of the respondents to the report were CEO or founder level and fell into the $2.5–5 million ARR range, but the report garnered participation from all employee levels, all company sizes, and all revenue ranges. For a quick recap of what’s covered in the report, keep reading.

SaaS Continues to Outperform

In April, the Wall Street Journal reported that the 52 stocks on the BVP Nasdaq Emerging Cloud index averaged a gain of 15 percent this year, a much better performance than the S&P 500’s 11 percent drop. From 2019 to 2020, public SaaS companies saw a growth rate of 45%. Even after falling from all-time highs in March 2020, public SaaS has rallied to nearly the same levels it saw prior to the fall.

Demand for public SaaS companies has remained high throughout the year, as evidenced by major SaaS IPOs like Snowflake, Asana, and ZoomInfo. Since its IPO in 2019, Zoom has grown to be one of the largest SaaS businesses in the world. Shopify has added more than $30 billion to its market cap in the last year, and Salesforce’s growth in the last year is greater than the equivalent of Atlassian’s entire market value.

SaaS Businesses Have Lost Confidence in Revenue-Generating Activities

COVID-19 and the economic volatility it’s brought with it have impacted the way SaaS (and every other industry) does business. While it’s clear that SaaS and cloud companies have largely been successful throughout these ups and downs, internal shifts have played a big role in that.

In 2020, growth rates have slowed across the gamut. As a result of the uncertainty this year has brought, the SaaS Benchmarks report suggests that businesses have lost confidence in revenue-generating activities. In turn, this means decreased growth rates. The youngest companies have largely avoided being impacted by this trend — simply due to the rapid growth most companies experience in their beginning stages. In SaaS companies, between 20 and 30 percent of ARR is spent on sales and marketing, with that number growing as the company increases recurring revenue.

Public Product-Led Companies Outperform Broader SaaS

As mentioned in our takeaways from last year’s SaaS Benchmarks report, public SaaS companies using product-led growth (PLG) tactics are growing faster than their marketing or sales-led counterparts. Despite a tumultuous stock market, public PLG companies have outperformed public SaaS companies by a nearly 50% premium in 2020. This is likely due to the fact that product-led businesses instinctually require less hands-on selling. Customers are able to sign up and start seeing value before ever speaking with a salesperson, making these companies less susceptible to headcount and budget cuts. This is good news for enterprise-level SaaS companies too, as PLG adoption has increased since 2019.

In B2B SaaS, Product Reigns Supreme

Employees make up a huge chunk of any startup’s budget, sometimes surpassing 50 percent of total expenses. As companies grow in size and revenue, their talent makeup changes significantly. At SaaS companies with less than $1 million in ARR, product and engineering hires, on average, make up more than half of the company headcount. This trend is especially prescient at companies following a product-led model, as they tend to have more product and engineering team members.

As a company’s ARR grows, so does its proportion of non-product and engineering employees. Sales, marketing, customer success, and other functions increase their share of the headcount pie. At companies with less than $1 million in ARR, sales, marketing, and customer success employees make up just 30 percent of all employees. At companies with $50+ million in ARR, non-product and engineering employees comprise two-thirds of headcount.

There’s no telling where the rest of 2020 will take us, although the SaaS Benchmarks report gives us a good idea of where we could be heading. We’re expecting more IPOs, even more volatility and uncertainty, and a lot of opportunities for disruption through the SaaS model.