As we step into 2025, companies continue to navigate the delicate balancing act between growth and efficiency. The lessons of the last few years–shaped by economic headwinds and shifting buyer priorities – offer valuable lessons for organizations navigating a successful course forward. Key trends and strategies are emerging that can help businesses achieve sustainable growth in the face of persistent macroeconomic volatility.
Every quarter, we conduct a deep dive on both public company performance and proprietary metrics from private software companies, curating actionable insights for our internal teams and portfolio companies. For the first time, we’re excited to share some of these findings publicly to provide a snapshot of key trends shaping the software ecosystem today.
Reflecting on 2024: A Year of Trade-Offs
Coming into 2024 amidst macroeconomic headwinds, many organizations made meaningful adjustments to their cost structures, focusing on exceeding bottom-line expectations.
Our ICONIQ Growth Enterprise Five metrics revealed a mixed picture with moderated growth and in particular, a notable improvement in ARR per FTE stood out. This improvement underscores many companies’ commitment to efficiency and bottomline preservation.

The Valuation Equation: Growth vs Profitability in 2025
Data from Q4 2024 reveals a telling trend: revenue growth is approximately twice as impactful as profitability alone in driving valuations when we look at forward revenue multiples for the publicly traded software companies. However, Rule of 40 remains highly correlated, signaling the power of profitable growth1.

To plan effectively in 2025, we expect companies will need to take multiple factors into account, including dynamics specific to their market, customer health, and business health. By doing so, they can help identify which levers across cost management and growth acceleration are needed.
To navigate these dynamics, many of the companies analyzed are adopting a dual approach:
Investing for Growth: Organizations are increasing their investments to reaccelerate topline growth. The median forecast for revenue growth in 2025 is a promising 38% YoY1, a significant improvement from the 29% YoY growth observed in 20241.
Improving Profitability: Companies are planning to invest in their organization and business while driving for better bottom-line margins, as indicated by projected operating expense growth rates at less than half of their topline growth plans, driven by more strategic and efficiency-oriented investments aimed at maximizing returns on spend1.

We expect these combined efforts to result in meaningful improvements in the Rule of 40—a critical benchmark for software and other subscription-based businesses. Many companies are projecting stronger Rule of 40 scores in 2025, well above where they ended in 2024, signaling a balanced focus on growth and profitability.

Growth Plans Demystified: Insights Across the Spectrum
While all segments anticipate topline reacceleration in 2025, differences emerge when dissecting growth plans by company scale and sector.
Growth-Stage Companies ($50M-$100M ARR): This segment is leading the charge in terms of spending reacceleration, particularly in sectors such as collaboration, operations, and GTM, likely as they double down on investments to capture market opportunities and fuel growth1.
AI-Driven Companies: Compared to traditional SaaS counterparts, AI-driven companies are generally forecasting more aggressive topline growth and overall OpEx spend, in particular driven by higher R&D spend as a percentage of revenue. This reflects the rapid evolution and adoption of AI technologies, as well as the need to maintain a competitive edge in this burgeoning space1.

Targeted Spending in 2025
Companies are fine-tuning their spending strategies to support growth while maintaining efficiency. The spend mix across G&A, R&D, and S&M is generally expected to remain consistent with 2024 levels, but with nuanced shifts1:
Sales & Marketing (S&M): Investment in S&M is set to grow at a median 22% YoY rate, reflecting its critical role in driving topline growth. Companies are leveraging targeted campaigns and optimized GTM strategies - one example being an increased focus on channel partnerships - to expand their customer base and increase revenue.
Research & Development (R&D): R&D spending is forecasted to grow by a median of 19% YoY, underscoring the importance of innovation. For AI-driven companies in particular, this investment is essential to advancing capabilities and solidifying competitive advantages, with AI-native and AI-enabled companies forecasting a higher R&D spend as a % of revenue, on average, compared to traditional SaaS counterparts.
General & Administrative (G&A): While growth in G&A spend remains more modest, companies are finding ways to optimize back-office operations, ensuring that resources are allocated efficiently to strategic priorities.

The Path Forward: Strategic Takeaways for 2025
Based on these insights, here are some actionable takeaways for companies striving to balance growth and efficiency in the year ahead:
Prioritize Growth-Driven Investments: With revenue growth holding more weight in valuation dynamics, companies with relatively strong business and market health should prioritize initiatives that directly contribute to topline expansion. This may include strategic hires in sales and marketing, scaling GTM efforts, and exploring new product opportunities, as well as exploring inorganic growth opportunities such as strategic M&A.
Maintain a Focus on Efficiency: Even as growth takes centerstage, efficiency remains a critical lever. Continuously optimizing cost structures via levers like a global workforce strategy or AI-driven productivity improvements can help bolster resilience and profitability.
Leverage AI for Competitive Advantage: For AI companies, the emphasis on R&D spending highlights the importance of staying ahead in a rapidly evolving market. Investing in cutting-edge technologies and AI-driven solutions can unlock new growth opportunities. However, we recognize that the fully loaded costs associated with truly adopting this next generation of technology (talent required to implement it, compute costs, data governance, etc.) are significant and companies will need help quantifying those costs and other learnings related to AI implementation as buyers move away from experimental budgets and into a phase of truly embracing these technologies.
Adopt a Segmented Approach: Growth strategies should be tailored to the unique needs of each segment. Early-stage companies may need to focus on achieving sustainable growth, while growth-stage and AI-driven companies should likely capitalize on their momentum to scale aggressively.
Monitor Macroeconomic Trends: With ongoing volatility, staying agile and responsive to economic shifts will be crucial. Companies that can adapt their strategies in real time will be better positioned to navigate uncertainties and seize opportunities.
Conclusion
As we move into 2025, we believe the balancing act between growth and efficiency will define success for companies across sectors. By drawing on the lessons of 2024 and aligning strategies with evolving market dynamics, organizations can position themselves for sustainable growth in the face of uncertainty. With strategic investments, a commitment to efficiency, and a focus on innovation, the year ahead holds promise for those willing to embrace the challenge and we are excited to continue supporting you on this journey.
Published:
February 3, 2025