The first time I wrote about startup benchmarks was in 2019 and it became one of the most popular posts on VC Cafe. It’s not a surprise, given that entrepreneurs are obsessed with data and metrics, but in the conservative VC market of 2024, it feels even more important for founders to know what ‘good’ looks like and what investors expect.
This post explores the most important benchmarks VCs look for in B2B SaaS with data brought to you by 20VC/La Famiglia, Serena Capital, Emergence Capital, and Openview Ventures, providing definitions and insights into the most critical metrics for SaaS companies.
First some important definitions
If you’re a SaaS practitioner, feel free to skip this to get to the meat and potatoes.
Key Metrics for B2B SaaS Startups:
- Annual Recurring Revenue (ARR) Definition: ARR is the yearly value of a company’s recurring revenue from subscription-based services.
- Benchmark: According to data presented at SaaStr 2024 by 20VC and La Famiglia, the median ARR for B2B SaaS startups raising Series A funding is $3 million, while the median for Series B is $10 million.
- Monthly Recurring Revenue (MRR) Definition: MRR is the predictable revenue a company expects to receive monthly from subscription-based services.
- Benchmark: Serena Capital suggests that B2B SaaS startups should aim for a 10% month-over-month MRR growth rate in the early stages.
- Net Revenue Retention (NRR) Definition: NRR measures the percentage of recurring revenue retained from existing customers over a given period, considering upgrades, downgrades, and churn.
- Benchmark: Emergence Capital recommends a target NRR of 120% or higher for B2B SaaS startups, indicating a healthy expansion of revenue from the existing customer base.
- Customer Acquisition Cost (CAC) Definition: CAC is the total cost of acquiring a new customer, including marketing and sales expenses.
- Benchmark: 20VC and La Famiglia suggest that the ideal CAC payback period for B2B SaaS startups should be 12 months or less, meaning the revenue generated from a customer should exceed the CAC within a year.
- Gross Margin Definition: Gross margin is the percentage of revenue remaining after deducting the cost of goods sold (COGS).
- Benchmark: Serena Capital advises B2B SaaS startups to target a gross margin of 80% or higher to demonstrate the scalability and profitability of their business model.
- Burn Rate Definition: Burn rate is the rate at which a startup is spending its capital to finance operations before generating positive cash flow.
- Benchmark: Emergence Capital recommends that B2B SaaS startups maintain a burn rate that allows for at least 18-24 months of runway to provide a buffer for unexpected challenges and to achieve milestones before the next funding round.
Top Decile Series A Metrics for B2B SaaS in 2024 – SaaStr
SaaStr Europa 2024, the biggest European event focus on SaaS startups took place in London this week and 20VC together with La Famiglia presented interesting benchmarks needed to raise series A in B2B SaaS (with data credited to Visionaries Club, a European B2B fund)
The original image was a bit fuzzy so here it is in table form for your convenience.
| Metric | Unremarkable | Good | Excellent | Outlier |
|---|---|---|---|---|
| ARR | <$500k | $500k-$1.5m | $1.5m-$2.5m | >$2.5m |
| LTM ARR Growth (YoY) | <2x | 2x-3x | 3x-5x | >5x |
| Net Dollar Retention | <65% | 65%-85% | 85%-100% | >100% |
| Gross Dollar Retention | <80% | 80%-90% | 90%-95% | >95% |
| Burn Multiple | >2.5x | 1.5x-2.5x | 1x-1.5x | <1x |
| Time to Recover CAC (Cash Basis) | >24 months | 18-24 months | 12-18 months | <12 months |
| Fully Ramped Quota Carriers | >2 years | 1-2 years | <1 year | <6 months |
| Sales Cycle | >18 months | 12-18 months | 6-12 months | <6 months |
| Invoicing Terms (Recurring Revenue) | Monthly | Quarterly | Annually | Multi-year |
Emergence Capital Beyond Benchmarks 2024
Emergence Capital and partners surveyed over 600 B2B software companies in April 2024 to understand the not only how performance changed over time, but also the use of Generative AI by companies and found some interesting data points.
- ARR growth rates decreased significantly in 2023 and growth stage companies were most impacted. Companies faced higher customer churn and downgrades. This resulted in cost cutting exercises to extend runway.
- Fundraising has become meaningfully tougher. It takes longer to secure rounds, and the size (and number) of rounds has decreased compared to 2021.
- 60% of the companies surveyed leveraged Generative AI in their products
As for benchmarks, below are the median and top quartile metrics by ARR Range
Openview 2023 product benchmarks report
OpenView Ventures’ 2023 Product Benchmarks Report provides valuable insights for product-led growth (PLG) strategies based on data from over 1,000 respondents. The main finding is that growth is cooling – only one-fifth of companies growing at least 75% year-over-year. However, PLG remains an important part of the growth equation, with PLG leaders growing at twice the rate of traditional SaaS companies.
A few stats to call out on the state of PLG (in 2023):
Organic Traffic Decline: Organic traffic has decreased, representing only 32% of leads compared to 39% the previous year.
Multiple User Acquisition Channels: PLG companies use a wider mix of social channels, with 41% leveraging Instagram.
User Activation: Defining and measuring activation metrics is crucial. PLG products see higher adoption of these metrics.
Conversion Rates: Free-to-paid conversion rates vary, with freemium products typically seeing a median conversion rate of around 5%, while free trials have a median rate of about 10%.
Sales Outreach Impact: Effective sales outreach significantly boosts conversion rates, with PLG companies benefiting from targeted outreach based on multiple user signals??.
Serena Capital European SaaS Benchmarks 2023
Serena Capital suggests focusing on “efficient growth” metrics, which include:
- Rule of 40 (which is now rule of 60): The sum of a company’s growth rate and profitability margin (EBITDA). A good benchmark is 40%, with top quartile companies aiming for 60% or more.
- ARR per Employee: Measures efficiency and productivity, with top quartile companies achieving higher ARR per employee figures
The report authors surveyed 700 participants from B2B SaaS European startups to come up with their benchmarks and 5 north star metrics.
In conclusion
Benchmarks can quickly get out of date and what was true in 2023 may no longer be accurate so take these with a grain of salt.
There’s no point in getting too stressed if your startup is not exactly top quartile for all these metrics at the time you need to raise, but it definitely helps to know what the gold standard is and what to aspire to.
As a pre-seed investor at Remagine Ventures, half of our investments are in B2B Software, especially around technologies in the content creation, distribution, monetisation and analytics space. Always happy to connect with pre-seed founders and provide VC friendly feedback. I also recommend checking out my post on conversion, retention and churn benchmarks for various business models (B2C subscription, marketplaces, etc).
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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