Update
Topline Growth & Operational Efficiency

Navigating Unpredictability: Introducing the "Resiliency Rubric" for SaaS Companies

Navigating Unpredictability: Introducing the "Resiliency Rubric" for SaaS Companies

Copy page URL to clipboard

Share on X

Share on LinkedIn

https://www.iconiqcapital.com/growth/insights/iconiq-growth-resiliency-rubric

Stay Ahead with ICONIQ Growth

This post was written in 2023. Read our latest research here

Current unpredictable market conditions have founders frazzled. With a pullback in overall spend throughout the economy, it can be tough to understand where to invest your startup’s time and funding. What will be the most impactful? Where can I gain efficiencies?

Based on financial and operating metrics from a dataset including certain of ICONIQ Growth’s SaaS partnerships and select public companies [1], we dive into these questions and the data behind effectively scaling SaaS businesses in the latest research from ICONIQ Growth Analytics. For more in-depth analysis and access to our comprehensive report on SaaS benchmarks and board reporting templates, visit our 2023 Growth & Efficiency research here.

Quick Ratio

(New Logo ARR + Expansion ARR) / (Downsell ARR + Churn ARR) (Quarterly or Annualized)

The SaaS quick ratio measures how efficiently a company is growing by comparing bookings growth against contraction.  As companies scale, the rate of growth tends to naturally slow while churn increases as a function of a growing customer base. This means that the quick ratio will naturally decrease.  However, top quartile companies are able to maintain a quick ratio above 4x even after reaching $100 million ARR.  In other words, for every $1 of lost ARR, these companies are adding $4 in recurring revenue.

This metric can be particularly relevant for early-stage businesses where metrics like Rule of 40 are typically less applicable due to the speed of growth and aggressive spend investment. For companies with multiple products or customer segments, breaking out the quick ratio by each segment can also help triage problem areas in customer growth or churn. However, it’s important to note that the quick ratio can only provide directional guidance on the health of a company’s growth and will not necessarily capture the capital efficiency of any business. Thus, it can be helpful to look at the quick ratio along with other efficiency metrics such as net magic number, CAC payback, and burn multiple.

Topline Attainment

Actual Net New ARR in Quarter / Planned Net New ARR in Quarter (Cumulative)

We believe that an important measure of both topline health and business predictability is topline attainment, which measures the actual dollars achieved each quarter against the original plan set at the beginning of the year.

It can be helpful to look at the attainment metric on a cumulative incremental basis rather than within a standalone quarter which can often be impacted by seasonal fluctuations. For example, calculating Q2 topline attainment as Q1 + Q2 (1H) incremental attainment, or in other words ending ARR in Q2 - beginning of year ARR (compared to the plan for that same time period).

Generally in stable macroeconomic conditions (circa-2019 and earlier), median attainment for companies with top performance in [metric] is in the 90-100% range each quarter, with most companies analyzed achieving closer to 100% attainment by year end. [2] In 2022, however, companies started the year with close to 100% attainment of plan in Q1 but saw median attainment drop to 62% by Q4. [3] Q1 of this year proved to be similarly challenging; persistent market pressures have led to deal slippage, weakened pipeline, and retention impact across the board with median attainment landing at 84%.  [4]

This metric becomes particularly critical as companies scale. Once companies go public, the ability to perform against the original forecast for the quarter (known as “beat and raise”) will have significant impacts on analyst sentiment and stock price. It may be helpful for companies to start implementing a “beat and raise” model 1-2 years before going public to ensure companies have developed a sufficiently rigorous forecasting model.

Burn Multiple

Cash Burn / Net New ARR (Quarterly or Annualized)

Burn multiple is a metric that measures the effectiveness of a company’s capital expenditures, by comparing it against net new revenue being generated each quarter. There are various flavors of the burn multiple; however, we used the calculation above in our analysis which looks at burn as a multiple of revenue growth. In other words, how much is a company burning in order to generate each incremental dollar of recurring revenue?

Burn multiples for SaaS companies skyrocketed between 2020 and 2022 as companies focused on “growth-at-all-costs” [5]. We believe it’s now time for companies to reorient and target burn multiples of <1.5x or even <1.0x—figures we saw pre-2020.  During times of uncertainty, SaaS companies often need to develop a leaner organization muscle that favors efficiency and extends runway as needed. Companies may find it helpful to carefully evaluate areas of spend to ensure there is clear ROI.

CAC Payback

(Sales & Marketing Expenses in Period) / (Gross New Customers x ARPU) x Gross Margin     Quarterly or Annualized

CAC payback is a metric that could be helpful to look at in conjunction with net magic number [6]. Another measure of sales efficiency, CAC payback measures how long it takes to break even on acquiring a new customer.

The topic of CAC and customer lifetime value can be complex. There is also not a universally accepted framework for calculating and impacting CAC in subscription business models with sales cycles and customer lifetimes of various lengths. Even across the companies in our dataset, we see various flavors of CAC that incorporate gross margin, include or exclude expansion, use different time periods of sales & marketing expense based on the sales cycle, etc.

However, in our analysis we looked at the average revenue generated for gross new customers and incorporate gross margin into the calculation to understand the true payback on new customer acquisition. For companies with sales cycles longer than 3 months, it may make sense to also offset the sales & marketing expense by a quarter (or the appropriate sales cycle length).

We consider a CAC payback period of under 12 months as exceptional; in today’s environment where acquiring new customers has become much more challenging, we are seeing CAC paybacks closer to 20-30 months for companies analyzed [7]. It is also important to note that CAC paybacks will vary significantly based on a company’s sales motions (e.g. PLG companies typically have much lower payback periods [8]), customer segment (enterprise-focused companies tend to see longer payback times [9]), and other business model nuances.

Productivity Ratio

Average ARR per FTE / Average OpEx per FTE

The last metric in the ICONIQ Growth Resilience Rubric is what we are terming the “productivity ratio.” This metric looks at the ratio between the average ARR per FTE and average total OpEx per FTE; in other words, how much revenue is being generated per employee vs how much spend is being invested per employee. This metric can help inform business decisions around hiring or reductions of force  and can highlight the tradeoffs between headcount, revenue growth, and profitability.  

As companies scale, the productivity ratio generally surpasses 1x, at which point the average ARR being generated per FTE starts to outpace total spend. This target of 1x+ usually becomes achievable and more relevant once companies get close to the $100M ARR mark.  Companies with a productivity ratio under 1x may find it helpful to look at not only people costs (i.e. payroll, headcount, onshore vs offshore mix) but also the direct investments in its workforce to improve productivity (i.e. L&D, training, performance management, etc.).

In times of volatility, we hope these five metrics can provide actionable insights, guide business decisions, and ensure adaptability to changing circumstances. By understanding and leveraging "The Resilience Rubric," we believe SaaS companies can forge a path of growth and profitability even amidst uncertainty.

Notes

Notes:

(1) This research summarizes quarterly operating and financial data from 96 B2B SaaS companies. An overview of our methodology and data sources, including a list of the companies included in the dataset, can be found on page 8 of the Topline Growth and Efficiency report here [link]. All ICONIQ Growth portfolio companies were included where data was available. The dataset also includes 13 public companies that are not (and have not previously been) ICONIQ Growth portfolio companies. All data was collected from public filings information. Top IPO performers are top quartile in two or more of the following:

1. Indication of Success of IPO: Forward Revenue Multiple at IPO

2. Indication of Success Post-IPO: Current Forward Revenue Multiple

3. Indication of Value Creation: Ratio of Change in Stock Price Since Day 1 Close vs. Market (S&P)

For a full list of ICONIQ Growth companies, please visit our website here.

(2) Internal analysis based on quarterly operating and financail data from 47 ICONIQ Growth portfolio companies

(3) Internal analysis based on quarterly operating and financail data from 47 ICONIQ Growth portfolio companies

(4) Internal analysis based on quarterly operating and financail data from 47 ICONIQ Growth portfolio companies

(5) Full analysis included in 2023 Topline Growth & Efficiency Report

(6) Net magic number is a measure of sales efficiency and can be calculated as current quarter net new ARR / prior quarter S&M OpEx

(7) Full analysis included in 2023 Topline Growth & Efficiency Report

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision. This presentation is for educational purposes only and does not constitute investment advice or an offer to sell or a solicitation of an offer to buy any securities which will only be made pursuant to definitive offering documents and subscription agreements, including, without limitation, any investment fund or investment product referenced herein. Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is prohibited. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ. Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation. Certain of the companies included in this report also provide services to ICONIQ Capital on an arm’s length basis.

Disclaimer:

Unless otherwise indicated, the views expressed in this presentation are those of ICONIQ Growth (“ICONIQ" or the “Firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision. Information used in this presentation was obtained from numerous sources. Certain of these companies are portfolio companies of ICONIQ Growth. ICONIQ Growth does not make any representations or warranties as to the accuracy of the information obtained from these sources. 

This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services.  Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein. 

Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized.

This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ.

Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information.

All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. Numbers or amounts herein may increase or decrease as a result of currency fluctuations.

Disclaimer

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision.  This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.  Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ. Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation. Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.

ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.

Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

Copyright © 2024 ICONIQ Capital, LLC. All rights reserved.

Disclaimer

The views expressed in this presentation are those of ICONIQ Growth ("ICONIQ" or the "firm"), are the result of proprietary research, may be subjective, and may not be relied upon in making an investment decision.  This presentation is for general information purposes only and does not constitute investment advice. This presentation must not be relied upon in connection with any investment decision. The information in this presentation is not intended to and does not constitute financial, accounting, tax, legal, investment, consulting or other professional advice or services. Nothing in this presentation is or should be construed as an offer, invitation or solicitation to engage in any investment activity or transaction, including an offer to sell or a solicitation of an offer to buy any securities which should only be made pursuant to definitive offering documents and subscription agreements, including without limitation, any investment fund or investment product referenced herein.  Any reproduction or distribution of this presentation in whole or in part, or the disclosure of any of its contents, without the prior consent of ICONIQ, is strictly unauthorized. This presentation may contain forward-looking statements based on current plans, estimates and projections. The recipient of this presentation ("you") are cautioned that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements. The numbers, figures and case studies included in this presentation have been included for purposes of illustration only, and no assurance can be given that the actual results of ICONIQ or any of its partners and affiliates will correspond with the results contemplated in the presentation. No information is contained herein with respect to conflicts of interest, which may be significant. The portfolio companies and other parties mentioned herein may reflect a selective list of the prior investments made by ICONIQ. Certain of the economic and market information contained herein may have been obtained from published sources and/or prepared by other parties. While such sources are believed to be reliable, none of ICONIQ or any of its affiliates and partners, employees and representatives assume any responsibility for the accuracy of such information. All of the information in the presentation is presented as of the date made available to you (except as otherwise specified), and is subject to change without notice, and may not be current or may have changed (possibly materially) between the date made available to you and the date actually received or reviewed by you. ICONIQ assumes no obligation to update or otherwise revise any information, projections, forecasts or estimates contained in the presentation, including any revisions to reflect changes in economic or market conditions or other circumstances arising after the date the items were made available to you or to reflect the occurrence of unanticipated events. For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you. ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation. Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

For avoidance of doubt, ICONIQ is not acting as an adviser or fiduciary in any respect in connection with providing this presentation and no relationship shall arise between you and ICONIQ as a result of this presentation being made available to you.

ICONIQ is a diversified financial services firm and has direct client relationships with persons that may become limited partners of ICONIQ funds. Notwithstanding that a person may be referred to herein as a "client" of the firm, no limited partner of any fund will, in its capacity as such, be a client of ICONIQ. There can be no assurance that the investments made by any ICONIQ fund will be profitable or will equal the performance of prior investments made by persons described in this presentation.

Any information in this presentation is directed at, and intended for, only persons who are experienced institutional or professional investors (“professional investors”) as defined by applicable law and regulation. Any person that is not a professional investor is not an intended recipient of this presentation and the matters discussed herein.

Copyright © 2024 ICONIQ Capital, LLC. All rights reserved.

The ICONIQ Growth website does not present information relating to ICONIQ Capital, its investment funds, or its advisory business and should not be consulted for any advisory purposes. The ICONIQ Growth content is intended for the use of company founders and executives.