The “growth-at-all-costs” era in startups has ended and many software marketing leaders are prioritizing prudence. It’s no wonder, given how CEOs and boards have changed their focus.
In a recent survey, Gainsight Software found that CEOs of SaaS firms and the VC/PE funds that back them agree: the Rule of 40, net recurring revenue (NRR), and other corporate efficacy measures are now “more important” than bookings and annual recurring revenue (ARR). In fact, less than 1 out of 7 respondents, CEOs and VC firms alike, cited the latter as “more important than other metrics.”
I’ve recently spoken with several SaaS marketing leaders who have echoed Gainsight’s survey respondents. Here are the adjustments they’re making:
Deferring new platform costs, by months or by quarters; they’re doing so to smooth out margins, maintaining the Rule of 40 by placing investments in a period in which they hope to cover with growing revenue
Reducing ad spend… by a lot; by doing this to cope with budget cuts they’re helping the business fight margin compression. However, some are redeploying the costs to channels with more directly attributable results in a bid to shore up ROPS while continuing to press on growth.
Prioritizing ABM; they’re seeking better efficiencies by precisely timing and targeting buys. They’re also reinvesting their marketing team’s time into orchestrating integrated tactics with sales and customer success, which can be a comparatively lower-cost activity than deploying program dollars directly into marketing channels.
Overindexing to renewal, cross-sell, and upsell by prioritizing their aforementioned ABM program efforts around customers. By preventing churn and expanding existing business, marketers can shore up their firm’s NRR.
Reducing and delaying costs; prioritizing efficiency; focusing on existing customers; all can be prudent priorities for marketing leaders seeking to do what’s right for their business and align their focus with CEOs and boards.
What’s the “Rule of 40?” A healthy SaaS company’s growth rate and profit margin should add up to 40%. For example, if a firm’s YoY growth rate shrinks to 10% this year, it should cut costs to realize a 30% profit margin. Even an unprofitable business can technically meet the Rule of 40, such as if its growth rate was 70% and its losses were no greater than 30%.