Why sales efficiency is important for M&A
News, insights and updates from the team at Bloom Equity Partners
Happy Friday folks.
This week we’re sharing some sales efficiency insights for SaaS operators as well as updates on the SaaS space from over the past few weeks.
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Sales Efficiency: The indicator of profitability
Given that the largest cost driver for most software companies is S&M, the profitability of a software co is less dependent on how much it costs to deliver and more so on how much it costs to sell the product. This is why potential acquirers place such a focus on a company’s sales efficiency metrics during the evaluation stage.
This week we wanted to highlight the importance of sales efficiency and how operators can effectively improve their efficiency ratios:
What is sales efficiency?
Sales efficiency is a metric that calculates how well a company sells its software and is measured by the revenue generated per dollar of sales and marketing expenses.
There are two ways to calculate sales efficiency: gross and net.
Gross sales efficiency looks at only the incremental revenue generated over a fixed period, while net sales efficiency offsets this revenue by any loss in customer revenue due to churn over the same timeframe.
Gross Sales Efficiency = Gross New ARR / S&M Expense
Net Sales Efficiency = Net New ARR / S&M Expense
Why is sales efficiency important for a software business?
Having a high sales efficiency ratio indicates your company’s ability to sustainably and efficiently scale into future growth and profitability. Putting in the resources to improve your sales efficiency early on helps attract future strategic and financial investors. Overall it sets up your SaaS business for a better exit opportunity in the future.
It’s important for operators to track their sales efficiency over time and compare it to industry benchmarks (an efficiency ratio of around 1 is acceptable for most SaaS businesses). If a sales efficiency ratio is trending lower than 1, operators may want to consider leveraging different upselling or cross-selling opportunities to boost their top line.
If you want to learn more about the impact of sales efficiency on your SaaS co, check out the following articles:
📚 Why Sales Efficiency is Key for SaaS Businesses
📚 How to Position SaaS Sales Efficiency for M&A
What We’re Reading and Listening To…
📚 Mostly made up: Growth adjusted gross profit per employee
Favorites from the Ecosystem
Investors👇…..
Founders👇…..
Operators👇….
News from the Industry: deals, deals, and more deals 💰
Vista Equity Partners Is Exploring a Deal for Coupa Software
Zendesk goes private in $10 bln deal
Private Equity Firms Keen to Return Cash Dump Discounted Stocks
Thoma Bravo Completes Strategic Growth Investment in SMA Technologies
End Note 🔚
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About Bloom Equity Partners
Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.
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