How SaaS Market Analysis Strengthens Software Negotiations

Dec 14, 2024

5 min read

Updated: Oct 21

The 2024 SaaS industry report suggests that SaaS suppliers may post high gross margins while producing modest or negative net profits.

For procurement teams, this distinction matters: a supplier’s cost structure, customer acquisition economics, growth priorities, and dependence on recurring revenue can materially influence its willingness to negotiate.

This report identifies five commercially relevant conclusions:

High gross margins do not necessarily mean high profitability.
Subscription revenue is generally more attractive than non-subscription revenue.
Retaining and expanding existing customers costs less than acquiring new ones.
Existing customers contribute a significant share of new annual recurring revenue.
A supplier’s financial position can reveal where it may—or may not—offer concessions.

These insights are not universal benchmarks for every SaaS supplier. They provide hypotheses that procurement teams can test against the supplier’s financial reports, commercial model, and account strategy.

Horizontal bar chart of SaaS metrics with abbreviations; CLTV to CAC is highest at 3.60, New CAC to New ARR next at 1.76. — Analysis of Key SaaS Metrics: CLTV-to-CAC leads at 3.60, highlighting profitability challenges, while new CAC-to-new ARR is 1.76, indicating investment in growth.

SaaS Profitability: Distinguish the Metric and Reporting Period

High gross margins do not establish high net profitability. R&D, sales and marketing, administration, and other expenses affect the final result.

The earlier chart presents historical 2024 industry benchmarks. Do not combine separate median expense ratios to calculate an observed industry net margin: each median may represent a different company.

Atlassian: Fiscal 2026 Update

Atlassian’s results for the financial year ended 30 June 2026 illustrate why the reporting period and accounting basis matter:

Annual revenue reached $6.572 billion, up 26%.
GAAP operating income was $10 million, an operating margin of approximately 0.2%.
The GAAP net loss was $54 million.
Non-GAAP operating margin was 30%, reflecting adjustments explained in the company’s reconciliation.

The final quarter showed a different picture: revenue of $1.766 billion, GAAP operating margin of 12%, and GAAP net income of $139 million.

A profitable quarter does not mean the full year was profitable. Likewise, operating margin, net margin, and adjusted profitability answer different questions.

For procurement, these figures inform the negotiation hypothesis. They don't reveal your account margin or how much discount the supplier can offer. Combine financial analysis with your renewal value, usage, switching options, and the supplier’s account priorities.

SaaS and AI Supplier Economics: The 2026 Benchmarks

Benchmarkit’s 2026 report, which primarily covers calendar-year 2025 performance, provides a broader view of acquisition efficiency, customer value, margins, and operating expenditure.

Indicator	Reported benchmark	What procurement should examine
Customer acquisition payback	16 months, down from 18 in 2024	Acquisition costs take time to recover. Consider the value of renewal certainty when negotiating.
Blended acquisition cost	$1.30 per $1 of new ARR, down from $1.40	Sales efficiency improved. Test supplier claims about rising acquisition costs against their own performance.
Customer lifetime value to acquisition cost—CLTV	4.1× overall; 5.6× for vertical SaaS versus 4.1× for horizontal SaaS	You can learn about vertical and horizontal SaaS in our course Technology Procurement Foundations to develop your own interpretation of these metrics.
Expansion versus new-customer acquisition	$0.80 per $1 of expansion ARR versus $1.63 per $1 of new-customer ARR	Expanding existing accounts costs about 51% less per additional ARR dollar, based on the reported medians.
Gross margin	76% overall; 80% for software only	Distinguish software economics from the costs of services and other revenue streams.
Gross margin by pricing model	62% for usage-only models; 76–84% across subscription variants	Different pricing models have different delivery economics. A subscription margin benchmark may not suit a usage-based offer.
Sales and marketing expenditure	35% of revenue, down from 37% in 2024	Examine the supplier’s commercial cost structure alongside its growth priorities.
General and administrative expenditure	17% of revenue, down from 24%	Operating efficiency extends beyond customer acquisition.
Research and development expenditure	27% of revenue, down from 35%	Test investment claims against expenditure, product delivery, and contractual commitments.
Rule of 40	25%, up from 15% in 2024	Performance improved by 10 percentage points but remains below the 40% reference. High gross margins do not establish strong overall performance.
AI expenditure within R&D	10% of R&D expenditure; 46 respondents	Check what claimed AI investment actually includes. This small sample requires caution.
AI pricing	Subscription plus usage represented 39%, the largest reported group	Evaluate both the fixed commitment and variable consumption exposure.

ARR means annual recurring revenue.

Retaining, Expanding and Acquiring Customers

Retention protects existing revenue. Expansion adds revenue within an existing account. Acquisition brings in a new customer.

For an illustrative $100,000 of additional ARR, the reported ratios imply $80,000 of expansion expenditure versus $163,000 for new-customer acquisition. This comparison concerns supplier sales and marketing expenditure; it does not measure total service costs or account profitability.

The report does not provide a comparable benchmark for retention costs. These figures therefore cannot establish that retention is a particular percentage cheaper, or that existing customers are “six times more profitable.”

My procurement conclusion: negotiate renewal and expansion together where commercially appropriate, while securing expansion rates before dependency increases. Support the negotiation with your account value, credible alternatives and the supplier’s specific economics.

Samples vary by metric. Separate medians do not represent a supplier's income statement.

This SaaS negotiation logic fits the Technology Procurement Framework used in the IT Procurement Foundations course: first understand licenses, utilization, and renewal exposure; then remove excess or duplicated demand; only then negotiate the optimized license base, renewal caps, true-down rights, and other commercial protections. A discount on unused licenses is still wasted money.

SaaS Negotiation Strategy topics

Highlight the Retention Value: Emphasize the cost-efficiency of keeping you as an existing customer versus acquiring a new one.
Analyze and elaborate on your CLTV (Customer Lifetime Value), especially if your contracts exceed the industry average in ARR or duration.
Seek additional benefits in subscription-based deals to maximize supplier margins.
Review your suppliers' financial reports to understand their profitability, long-term strategy (e.g., Atlassian bleeding margins for R&D), and readiness to make concessions.

Video lecture: SaaS Industry Benchmarking Analysis.

Conclusion

SaaS market benchmarks do not determine negotiation outcomes. They help procurement ask better questions.

The strongest negotiation position comes from combining industry economics with supplier-specific financial analysis, account-level evidence, and a credible alternative. This lets procurement identify which concessions the supplier can realistically offer—and what the customer may need to trade to secure them.

ChatGPT is just a tool.

Again, I used ChatGPT to analyze the report and produced dozens of revisions and drafts of this material until I identified which conclusions to request. It's enthusiastic and tireless, but prone to hallucinations and generic statements rather than in-depth research and findings. It's a great tool, but still far from a silver bullet.