How is our investment mix in product vs growth evolving?
№ 022 · R&D and S&M as % of revenue
Definition
MetricR&D spend and S&M spend, each as a share of revenue/ARR, over time
Unit% of ARR
Stacked area of two percentages. Total fluctuates; declining total signals operating leverage. Build by dividing each cost category by revenue per quarter. Example: 38% + 52% = 90% in Q1 24; 22% + 32% = 54% in Q3 25 (clear leverage).
- R&D
- Research and development. Engineering, product and design cost, usually shown as a percent of revenue.
- S&M
- Sales and marketing. All go-to-market cost: salaries, commission, media spend and tooling.
Benchmarks
| Bottom 30% | Median | Top 30% |
|---|---|---|
| S&M above 40% of revenue with growth below 15%, or R&D below 10% for a product claimed to be the differentiator | S&M: ~21% of ARR combined (selling + marketing) at the all-private median, but ~37% of revenue in growth-oriented samples (VC-backed ~47%, PE-backed ~33%); R&D: ~18-20% of ARR at the private median, higher (30%+) in engineering-led samples | Spend mix matched to strategy: high-growth posture with S&M up to ~45-68% of revenue while growth exceeds 30%, or efficient posture with combined S&M ~21-30% at moderate growth; R&D 15-25% with rising share in AI-native roadmaps |
Private B2B SaaS 2025 spending data; medians differ sharply by funding model and sample (SaaS Capital all-private vs Benchmarkit growth-weighted), and by ARR band · The spread across surveys is definitional, not contradictory: SaaS Capital's ~21% combined S&M covers the whole private universe including bootstrapped and slow growers; growth-sample medians run 33-47%. Equity-backed companies spend 70% more on sales, 100% more on marketing and 56% more on R&D than bootstrapped (SaaS Capital). Judge the mix against the growth it buys, not against a single median.
| Category | Bottom 30% | Median | Top 30% |
|---|---|---|---|
| By funding model (S&M % of revenue) | any model spending 40%+ with sub-15% growth | VC-backed ~47%; bootstrapped materially lower (89-100% less absolute S&M spend than equity-backed) | PE-backed ~33% with efficiency mandate |
When it looks bad
The S&M line rises for several periods while the growth rate line (overlay it) falls: spend share and output diverge, the scissors pattern that precedes every efficiency crisis.
S&M goes 38% to 46% of revenue across a year while growth decelerates 34% to 21%. Every point of extra spend share bought negative marginal growth; the mix is funding a broken funnel, not a strategy.
What to do about it
- Always plot this chart with the growth rate overlaid; the KeyBanc pairing (68% S&M share for 30%+ growers vs 31% for slow growers) only makes sense as a spend-output pair, never as a spend target alone.
- Rebalance toward R&D when NRR is the binding constraint: if churn reasons are product gaps, a point of revenue moved from S&M to R&D returns through the retention line (SaaS Capital: one NRR band is worth ~5 growth points) at better economics than more pipeline.
- Benchmark against the right universe: a bootstrapped company holding S&M at 20% is normal (SaaS Capital all-private median ~21% combined), not underinvestment; a VC-backed growth company at 20% is a strategy question.
- Inside S&M, audit the paid share annually: paid advertising typically runs 3-5% of ARR within an ~8% marketing budget; paid creeping past half the marketing line without CAC ratio improvement is the usual leak.
Sources
- SaaS Capital Bootstrapped total spend ~93-95% of ARR vs equity-backed 107-109%; equity-backed spend 70% more on sales, 100% more on marketing, 56% more on R&D; spend tables by ARR band saas-capital.com ↗
- SaaSrise (reporting KeyBanc and SaaS Capital data) Combined S&M ~21% of ARR at the all-private median; KeyBanc: >30% growers spend 68% of revenue on S&M vs 31% for <10% growers; paid advertising typically 3-5% of ARR inside the ~8% marketing budget saasrise.com ↗
- Benchmarkit Private companies above $100M ARR invest 33% of revenue in S&M, identical to public SaaS benchmarkit.ai ↗
- Orb (reporting SaaS Capital departmental data) S&M median range 27-45% of ARR by size and stage; R&D median ~18%; customer success ~8.5%; G&A ~11% withorb.com ↗
- ICONIQ Growth Opex growth planned at less than half of topline growth; AI-native and AI-enabled companies forecasting higher R&D as % of revenue than traditional SaaS iconiq.com ↗
- High Alpha S&M and R&D spend (including headcount) as % of ending ARR benchmarked by quartile as of Q2 2025 2994607.fs1.hubspotusercontent-na1.net ↗