Operational Efficiency in SaaS: best practices and key metrics

‍Operational efficiency has become a strategic imperative to build a sustainable and resilient SaaS model. With capital becoming increasingly scarce, entrepreneurs must maintain their level of service with fewer resources.

This article explores essential levers to achieve optimal efficiency and the key metrics to measure and manage performance. These recommendations are based on insights from Sébastien Leroy (Partner at Serena), Jean-Louis Benard (CEO of Sociabble), and Arnaud de la Taille (CEO of AssoConnect).

Optimising resources : improving capital efficiency

Rationalising expenses: a managerial challenge

From its early days as a bootstrap SaaS, AssoConnect faced significant choices regarding resource allocation. Particularly in a bootstrap context, every expense has a direct and measurable impact on the business.

After its second funding round (€7 million in 2020), its CEO, Arnaud de la Taille, had to reassess strategic priorities to secure the company’s sustainability.

He shared two key advice that enabled him to reduce budgets successfully:

1. Internal transparency: Communicate the reasons for budget adjustments to maintain team trust and avoid harmful misunderstandings.‍
2. Methodological support: Work with Lean Management experts to transform cost reductions into efficiency gains by better leveraging available resources.

Tips for successful budget adjustments

Budget cuts are often seen as an immediate solution to optimise cash flow, especially during periods of economic strain. Jean-Louis Benard shares several proven practices for successfully implementing this approach:

• Align salary scales with market realities:

Reviewing payrolls is a crucial lever for cost optimisation, as salaries typically account for 80–90% of SaaS expenses. However, simply cutting wages or reducing staff is not sufficient. It is essential to align pay scales with market standards to offer realistic packages that are competitive with those of rivals.

• Variable costs or internalising certain functions:

To maximise organisational efficiency, shifting from high fixed costs to variable expenses is an excellent strategy. For instance, many companies internalise critical functions instead of maintaining high external costs.

Recruitment serves as a concrete example: by internalising this function, businesses can achieve substantial savings compared to outsourcing while improving control over hiring quality.

• Maintaining product quality under budget pressure:

In the context of resource rationalisation, it may be tempting to cut back on R&D investments or sacrifice certain product features. 

However, such a choice can jeopardize long-term competitiveness. It is crucial to maintain a high-quality level, even during budgetary constraints. This ensures continued customer satisfaction and lays the groundwork to be ready when the market recovers.

Lean Management : a catalyst for operational efficiency

Lean Management, originally from the industrial sector, is an optimisation model equally applicable to SaaS. As Arnaud de la Taille explains:

“Lean is a set of mental frameworks that help map out the company and visualise value-creating processes.”

1. Identifying inefficiencies and bottlenecks
   The first lever of Lean in SaaS involves mapping out the key activities in the production and service delivery process. This helps identify friction points, or “bottlenecks,” that slow down value creation. The goal is to optimise processes and eliminate low-value-added activities—a fundamental principle that has proven effective.‍
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2. Maximising available resources
   Another key characteristic of Lean is the optimisation of available resources. For SaaS, this means improving the allocation of human, financial, material, and time resources. The idea isn’t to reinvent the company but to adopt proven practices to “do better with less.”
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3. Continuous improvement and waste reduction
   A fundamental principle of Lean is continuous improvement, or Kaizen. This directly applies to managing SaaS services, aiming to maximise customer value while minimising production costs.‍
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4. Flexibility and cost reduction without compromising quality
   Finally, Lean enables SaaS companies to handle budget constraints without sacrificing service quality. Lean’s mental frameworks never advocate sacrificing quality, which is crucial for maintaining competitive advantages over time.

Key metrics to manage operational efficiency

Measuring operational efficiency relies on financial, structural, and strategic indicators.

Monitoring essential performance: Key metrics to track 

Jean-Louis and Arnaud share the key metrics that have enabled them to achieve operational efficiency and assess the viability of their business model:

• ARR per employee: a revealing measure of productivity and profitability.some text
  • €30K for early-stage startups.
  • €200–300K for highly established companies.
• Payroll Distribution: Analysing the balance between teams (sales, marketing, CSM, products) provides a clear picture of strategic priorities.
• CAC Payback: Aim for a customer acquisition cost payback period of 12 to 15 months to ensure healthy spending management.
• Cost of Serve and LTV/CAC: Ensure that the service cost remains significantly lower than the customer lifetime value (ideally, LTV > 3x CAC).
• Churn rate: Analyze in detail at every growth stage to understand customer behaviour. 
• Net Retention Rate (NRR) : A critical indicator for assessing the company’s ability to grow revenue without additional acquisition efforts.

Focus: the Rule of 40

The Rule of 40 is a key metric for evaluating the balance between growth and profitability in a SaaS company. It determines whether a SaaS is spending effectively to generate growth. The rule states that the sum of two metrics—revenue growth (%) and EBITDA margin (%)—should be equal to or greater than 40%.

The basic principle is straightforward:

• If a company is experiencing rapid growth but generating significant losses, its fast growth can offset those losses.
• If growth is moderate, profitability (i.e., positive EBITDA) becomes even more critical.

A concrete example: Imagine a SaaS company growing its revenue by 100% year-over-year but with a negative EBITDA of -50%. Applying the Rule of 40 gives a score of 50 (100% growth - 50% EBITDA). This score exceeds the benchmark of 40, indicating the company is on track. However, the company must still improve profitability to ensure long-term sustainability.

A key aspect of the Rule of 40 is finding the right balance between growth and profitability. Rapid growth without generating cash flow or positive EBITDA can become problematic in the long term. It’s essential to temper growth ambitions with the ability to generate free cash flow or EBITDA.‍

The Rule of 40 becomes particularly relevant for SaaS companies reaching a particular revenue milestone, often around €3–4M in ARR (annual recurring revenue). At this stage, entrepreneurs gain better visibility into how to optimise growth and profitability. This is when they should begin refining their investment strategies.

In summary, the Rule of 40 is a powerful tool for assessing the financial performance of a SaaS business. However, it should be used alongside other financial indicators to provide a comprehensive view of the company’s health.

Serena’s SaaS benchmark: a strategic tool for entrepreneurs

For the past four years, Serena has published a European SaaS benchmark for early-stage companies (700 firms in 2023, with 1,000 expected next year). This study addresses the lack of European benchmarks compared to often inapplicable American standards.

Key insights on capital efficiency:

• ARR per employee: €60,000 for companies with €1–€5 million in revenue, rising to €230,000 for €10–€30 million.
• Goal: To demonstrate model robustness and achieve €200,000–€300,000 ARR per employee.

These insights give entrepreneurs and investors a solid foundation to assess their positioning and identify areas for improvement.

Operational efficiency is not just about cost optimization; it is built on a clear strategy, appropriate tools, and well-chosen metrics. Best practices shared by industry experts enable businesses to strike the right balance between performance and resilience.