GTM Live Episode 29: How GTM Efficiency Impacts Revenue Multiple and Enterprise Value
Podcast: GTM Live
Date: September 3, 2024
Hosts: Carolyn Dilks & Trevor Gibson (Passetto)
Special thanks: Chris Walker (brief intro), analysis from David Spitz
Episode Overview
This episode dives deep into the relationship between Go-To-Market (GTM) efficiency and enterprise value/revenue multiples, primarily for high-performing B2B SaaS companies. Building on fresh, proprietary data from David Spitz at BenchSights, the hosts make the case that two financial metrics—growth rate and GTM efficiency—are the primary drivers of enterprise value, upending the focus on outdated indicators like CAC payback and Rule of 40.
Main theme: Why GTM efficiency has become more critical than ever for both public and private SaaS enterprises, and how founders, revenue, and finance leaders should measure and act on this insight.
Key Discussion Points & Insights
1. Defining GTM Efficiency and Its Impact
- Key argument: All conventional financial, investor-level KPIs (like CAC payback period, LTV:CAC, Magic Number, Rule of 40) can be replaced with one number: GTM (Sales & Marketing) Efficiency percentage.
- Calculation methodology:
- GTM Efficiency = (Last 12 months GTM spend / Net New ARR) × 100
- Net New ARR = New logo revenue + expansion revenue – churn – contraction
- Lower percentages indicate higher GTM efficiency.
Quote:
"All you need to really understand the health of a mature, well-performing company is two numbers: growth rate and go to market efficiency percentage." — [03:00]
2. The Data: GTM Efficiency vs Revenue Multiple
- New analysis: Spitz and team reviewed 80 public SaaS companies comparing reported GTM spend and resultant ARR.
- Key finding:
- Companies with GTM efficiency <175% had median enterprise values of 10× revenue
- Companies spending >250% had a 3.6× revenue multiple
- Private markets extrapolation: A $100M SaaS company at 350% GTM efficiency would expect a 3–6× revenue multiple, versus potentially 10× if they brought it under 175%—a $640M swing in enterprise value.
Quote:
"This can make swings in hundreds of millions and billions of dollars of what a company is worth." — [02:35]
Comparative Example [08:00]:
- Confluent: 24% growth, 296% efficiency ➜ 6× revenue multiple
- Datadog: 27% growth, 123% efficiency ➜ 13× revenue multiple
Conclusion: Tiny differences in growth, massive impact from GTM efficiency.
3. Q&A: Practical Application, Measurement Nuance, and Benchmarks
a. Customer Success and GTM Spend
- Should Customer Success count in GTM expenses?
- Public companies aren't consistent; sometimes it's COGS, sometimes GTM.
- The hosts currently include Customer Success and other post-sale commercial functions in GTM for their calculation.
Quote:
"You could make the argument that customer success should be a revenue driving function... To the work that we've done so far, we've chosen to put customer success in go to market expenses." — [10:35]
b. Rule of 40’s Blind Spots
- Rule of 40 doesn’t explicitly catch gross overspending in S&M; GTM efficiency directly exposes margin destruction.
Quote:
"Go to market expense is the core driver of EBITDA." — [15:08]
c. ARR and Negative Growth
- Net new ARR can be negative (churn/contraction > new+expansion), leading to impossible or ‘infinite’ GTM efficiency (red flag on dashboard).
Quote:
"If your growth is negative, then theoretically the number is infinite... a big warning sign." — [17:22]
d. Expansion, Contraction, and Data Granularity
- Net New ARR covers both new logos and (expansion – contraction – churn).
- Deeper segmentation (e.g., pipeline creation, logo closes, renewals, expansion) allows targeted optimization per funnel stage.
e. GTM Efficiency: Benchmarks ('Good/Better/Best')
- Target: <200% is ‘safe zone’
- 300–500% is "danger zone," where companies have to spend $3–5 to get $1 in net new ARR, and revenue multiples crater.
- 100% (1-year payback) is almost never seen in B2B SaaS; "conventional wisdom" overly rooted in B2C/e-comm.
Quote:
"Target rule: try to be under 200%. If you have strong NRR and aren’t super wasteful in new logo, you should probably be able to get there." — [20:49]
4. Causal Mechanisms & Real-World Patterns
- Growth-at-all-costs era (pre-2022):
- Companies could ignore unit economics, spend recklessly, and IPO on outsized revenue multiples.
- This has now collapsed; as multiples compress, wasteful spend rapidly kills enterprise value.
- Patterns observed:
- Series B/C companies encouraged to "pump signups/new logos" for investor optics (often at the expense of real GTM efficiency); problems surface painfully at later-stage scaling.
Quote:
"All the problems that show up in series D and E companies start at the mindset of series B and C companies... Companies knowingly wasting hundreds of thousands of dollars a month on Google Ads to show signup growth to investors that know those signups never become a customer." — [21:04]
5. Strategic Implications & Recommendations
- Every SaaS company should:
- Consistently measure GTM efficiency as a rolling 12-month metric, quarter by quarter.
- Use it in board/investor conversations, especially ahead of fundraising or exit.
- Empower execs—especially CMOs/CROs—to understand how budget allocations directly impact GTM efficiency (and thus valuation).
Quote:
"If you were in that situation, you might say, okay, I'm not going to deploy $10 million next year; we’re going to deploy $6 million... and get better impact by making these strategic changes." — [29:50]
6. Calls to Action & Future Content
- David Spitz will be a guest on the show Sept 24 to share more data, especially for those wanting non-public company benchmarks.
- Suggestion: GTM and SaaS leaders, including VCs, should report GTM efficiency metrics to build richer benchmarks for private markets.
- Hosts encourage relistening and sharing with CFOs/finance leaders; these concepts are "groundbreaking" for GTM/finance alignment and value creation.
Notable Quotes & Memorable Moments
- “This is literally groundbreaking information that could change how companies strategize and plan immediately.” — [01:27], Host
- “Do you want your shares to be worth two times more than what they are right now? That’s the difference between spending the budget more efficiently and really starting to figure this out.” — [12:54], Host
- “Instead of raising at 20x, you’re raising at 6x... You have to grow so much more to command the valuation increase that an investor is going to approve.” — [11:52], Host
- “You could literally destroy your company by doing this. The environment is really different than it was three or four years ago.” — [28:55], Host
Key Timestamps
- 00:27–03:00: Definition & Calculation of GTM Efficiency
- 04:30–08:30: Data insight: GTM efficiency vs revenue multiples
- 09:39–11:14: Q&A: Customer Success in GTM, accounting nuances, strategic impact
- 12:54–15:01: Limitations of Rule of 40, focus on true cost drivers
- 16:04–17:45: Negative net new ARR, what if efficiency can’t be measured
- 18:08–20:49: Granular revenue attribution and efficiency benchmarks
- 21:04–23:43: Growth-at-all-costs mindset, startup scaling pitfalls
- 24:21–25:26: On benchmarks in private companies, Spitz’s ongoing data effort
- 29:07–30:30: The KPI stack, implications for marketing/revenue leaders; decision-making
Tone & Style
Direct, data-driven, honest, and practical—skewed toward boardroom realities for SaaS CEOs, CFOs, and GTM leaders. Little patience for vanity metrics, strong advocacy for financially literate, efficiency-centric GTM leadership.
TL;DR
GTM efficiency is now a principal driver of SaaS company value—measure it, manage it, and focus your revenue leadership, or expect investor penalties and destroyed equity. Most other KPIs can be replaced by two numbers: growth rate and GTM efficiency percentage.
Public data makes it clear: sub-175% efficiency? 10x revenue multiple; above 250%? Just 3.6x. Use this in your boardroom now.
Next Up:
Tune in September 24 for a deep dive with David Spitz on private benchmarks and more actionable tips for SaaS leaders.
