3 min - May 29, 2023

What is Growficiency in SaaS?

by Lauren Thibodeau

Don’t worry if you haven’t heard this word before. We made it up. That’s right – it’s the word we coined at SaaSCan to capture the ideal balance between Growth and Efficiency that our research tells us SaaS companies should strive for in today’s climate.

Growficiency.

Noun

The desirable combination of growth + efficiency together.

  • Alongside an accomplished founding team and impressive customer traction, that SaaS startup demonstrated impressive growficiency, resulting in multiple offers of VC financing.

Or if you prefer an adjective:

Growficient.

Adjective

  • That SaaS startup was highly growficient, contributing to a 24 month runway!
Why a new word?

It used to be that when SaaS startups got past the Product Market Fit stage, especially venture backed SaaS startups, their main objective shifted to GROWTH GROWTH GROWTH.

As one Canadian SaaS investor put it to me recently, “A few years ago, you drove more value by being faster growing. Things have moved to being more capital efficient.”

Today, you drive more value through the combination of Growth + Efficiency, or as we’re calling it at SaaSCan, Growficiency.

I wish we’d coined this word before SaaSCan’s Flagship 2022 Investor and Lender survey on the SaaS Metrics That Matter Most (results here).

We asked investors and lenders what they consider a SaaS company’s main objective after about the $1M ARR mark.

Rather than picking Growth or Capital Efficiency, the first few survey respondents picked Other, then typed in “Growth + Capital Efficiency together”. So we revised the survey going forward to have “Growth + Capital Efficiency together” be one of the options. But that’s a lot of words.

This year, we’ll put Growficiency!

How do you measure Growficiency?

In addition to Revenue Growth Rate %, we wanted to know what other key metrics SaaS companies should look at to assess their growficiency. Then as a general rule, what values they should be targeting.

Udit Bhatnager, VP at McRock Capital  provides the following guidance:
For Companies > 1M ARR
  1. ARR Growth Efficiency Score
    • Calculated as Net New ARR / Net Burn
    • Target > 1x (higher is better)
  2. Capital Efficiency
    • ARR / (Total Equity + Total Debt + Total Grants – Cash)
    • Target ~0.5 (higher is better)
  3. Sales Efficiency
    • Calculated as ARR / Annual Sales & Marketing Expense
    • Target > 1 (higher is better)

If your company is over 1M ARR, are you measuring these metrics today?

For companies > 20M ARR, add in:
  1. Rule of 40
    • Calculated as Revenue Growth Rate % + Gross Margin %
    • Target 40 – 60
  2. Human Capital Efficiency
    • ARR / Total FTEs
    • Target $100,000 (higher is better)

If your company is over 20M ARR, are you measuring these metrics today?

In related news
  1. Get the 2023 B2B SaaS benchmarks segmented by ACV, GTM Motion, ARR and more as soon as it hits the streets by subscribing to SaaSCan Insights today.
  2. Find SaaS metrics definitions and examples at MetricHQ.
About SaaSCan

SaaSCan for Scaleups helps scaling North American SaaS companies increase revenue and improve the customer & employee experience through our MRR Optimizer and Customer Journey Mapping services. Let’s chat.

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