How SaaS Market Analysis Strengthens Software Negotiations
- Sergii Dovgalenko
- Dec 14, 2024
- 3 min read
Updated: Jul 27
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 should not be treated as 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.
SaaS profitability is not a given
I recall some people expecting the SaaS industry to see profits boom, as it sells "hot air." The first customer pays for the R&D; the rest are just there to be exploited (those people used to say).
Let's look at the metrics above :
A gross profit margin of 79% is allocated to R&D (30%), General and Administrative costs (23%), and Sales and Marketing (34%), so the net profit margin falls as low as -8%. Of course, this is based on median values (market average), while top players are expected to perform way better. Therefore, other reports suggest net profit margins of 0-2%. Still, nothing exciting, but at least a handful of peanuts...
We decided to look at real-world market leaders and received a mixed bag of results:
Adobe 25.59%
Salesforce 15.96%
Asana -36.46%.
Then, we looked into Atlassian's Q1 2025 fiscal report, an undisputed SaaS market leader in gross revenue ($1.2 billion in Q1) and clientele (83% of Fortune 500 companies). Their report aligns with our earlier estimates, with a 10% net profit margin and 50% of revenue allocated to R&D.
Other conclusions from the SaaS market analysis
Non-subscription revenue dilutes the gross margin (79% to 74%).
For every $1 in revenue, 16% is allocated to customer acquisition and retention.
This aligns well with industry S&M spend (34% of revenue), suggesting nearly half is consumed by direct customer acquisition efforts.
Companies spend 43% less to expand or retain existing customers than to acquire new ones.
It takes 22.3 months to break even on a new customer acquisition at the median.
Companies generate 35% of new ARR from existing customers, a 6% increase year over year. This highlights a shift toward prioritizing expansion strategies.
New customers generate 85% more revenue but are 76% more expensive to acquire. Therefore, existing ones are 6x more profitable, assuming a 2% net profit margin.
SaaS Negotiation Strategy topics
Highlight the Retention Value: Emphasize the cost-efficiency of retaining you as an existing customer compared to 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 provide the highest margin for a supplier.
Look into your suppliers' financial reports to understand their profitability, long-term strategy (e.g., Atlassian bleeding margins for R&D), and preparedness for concessions.
Conclusion
SaaS market benchmarks do not determine the outcome of a negotiation. 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 allows procurement to identify which concessions the supplier can realistically offer—and what the customer may need to exchange to secure them.
ChatGPT is just a tool.
Once again, I employed ChatGPT to analyze the report and produced dozens of revisions and drafts of this material until I realized which conclusions to request. It's enthusiastic and tireless, but prone to hallucinations and to generic statements rather than conducting in-depth research and producing findings. It's a great tool, but still far from a silver bullet.
Deep Dive into the SaaS Negotiation topic
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