☁ Benchmarking 101
LAST CALL: SaaS Bootcamp + Guest Speaker List
Rumor has it that Harry actually left the royal family because he disagreed with Elizabeth on the proper benchmarks for guiding royal expectations.
While this is common, it doesn’t have to happen to you.
Benchmarking is in vogue as companies battle with VC demands to reach profitability and ramp up FY25 annual planning.
Unfortunately, most people don’t do this right.
Let’s chat about choosing the right benchmarks and where to find them 👇
📣📣 SaaS Bootcamp: 3 Amazing Guest Speakers!
Stan Zlotsky, SVP, Head of Finance and IR at Pendo.io. Previously ED, Software Equity Research at Morgan Stanley. Stan led the famous SaaS X-Ray report and is a thought leader on long-term SaaS margins and pivoting from Wall Street to Corporate Finance.
Vijay Bolina, CISO at Deepmind, Google. Previously the CISO at BlackHawk Network and a contractor responding to data breaches perpetrated by some of the world’s most sophisticated nation-states targeting the US Military.
Emilio Escobar, CISO at Datadog. Previously VP, InfoSec at Hulu, and started his career interning at the US DoD in the aftermath of September 11. Emilio provides insightful context on how dynamic corporations view the risks/opportunities around AI and securing networks.
Join students from Goldman Sachs, Microsoft, Bank of America, Palo Alto Networks, Cowen, SVB, Scotiabank, VCs, ETF Managers, and many more!
🚨🚨 Workshop starts TOMORROW
What is benchmarking?
Benchmarking is using peer financial and operating data to understand how your company is performing relative to your industry, set targets, and enable executives to make strategic decisions based on the information.
Like anything in finance and corporate strategy, there’s a bad way and a good way (what my readers aim for) to use benchmarking:
The Lazy Way. Looking simply at Absolute $ spend or % of revenue with no regard to other relevant information (“Company XYZ spent $50M on G&A, so should we”.
The Strategic Way. Incorporating additional information to make strategic decisions. (“Company ABC was able to more rapidly drive efficiency when they were at our scale”)
Benchmarks are also heavily used by investors as it is a simplified framework to analyze their portfolio companies against each other and against peers. When they see large deltas, be prepared to answer for the deltas (or explain why it’s not as relevant).
How do I choose which benchmarks to use?
The more difficult part is making sure to choose the RIGHT benchmarks. If you sell cars, Meta is not your benchmark. Similarly, if you’re a SaaS company, you should be looking at other SaaS companies.
Benchmarks are also commonly used in capital markets to judge relative valuations. In this case, you typically try to compare yourself to “best-in-class” metrics to maximize your valuation.
There are 3 common considerations for choosing the right benchmark:
Size. Scale plays an important factor in determining how much a company spends, especially as a percentage of revenue. This is frequently the case in G&A.
Growth. The faster a company grows, the more it must spend in Sales & Marketing. In a dynamic industry, a company also has to invest more in developing new products to remain competitive.
Time. Popular in capital market considerations such as “time to IPO” and size of recent M&A.
We have a section on benchmarking when thinking about long-term margins in our SaaS Bootcamp:
Where do I find benchmarks?
There are 2 main sources of benchmarks:
Public company SEC filings (I’ve been a huge fan of BamSEC recently, but you can also just go old-school EDGAR)
Aggregated Private company reports
Attaining private company data is always much more difficult, but many VCs periodically publish relevant insights from their portfolios. Your friendly, neighborhood investment banker may also have some helpful resources, but these are usually harder to get your hands on.
The metric maven himself,
, d.b.a. Mostly Metrics, put out a great report last week aggregating all the top private reports.He also has a great call out about our workshop 👇
With Blessings of Strong NRR,
Thomas
Any questions? Respond to this email or drop them in the comments 👇
☁ TOMORROW: SaaS Modeling Bootcamp
Dive into SaaS ACV vs. ARR, Revenue metrics, Billings, and Bookings
Understand long-term FCF margins
Live Q&A + interactive models/worksheets
Slack networking group
🚨 Workshop starts TOMORROW
With blessings, of strong NDR.