Your guide to ARR per employee

A primer and new benchmarks on the hot new SaaS metric

👋 Hi, it’s Kyle and I’m back with a 🔥 edition of Growth Unhinged, my newsletter that explores the unexpected behind the fastest-growing startups. 

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SaaS seems to love complicated metrics. I’d be lying if I said I didn’t love a few of them, too.

An increasingly important metric is shockingly simple: annual recurring revenue (ARR) per full-time employee (FTE). It’s a metric you can’t hide from. There’s no complicated math or financial engineering to do. You don’t need to be a CFO to calculate it.

I’ll unpack what “good” ARR per FTE looks like, how expectations are changing, ways to improve this metric, and common pitfalls to avoid. Let’s dive in.

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What “good” looks like

Knowing what metric you should use is just half the battle. You also need to know what “good” looks like. 

For this, we can turn to the 2023 SaaS benchmarks report, which collected data from 700+ private SaaS companies.

Here’s how to tell whether you’re on the right track:

📈 $1-$5 million ARR: Good: $90k, Great: $150k+

📈 $5-$20 million ARR: Good: $150k, Great: $250k+

📈 $20-$50 million ARR: Good: $200k, Great: $275k+

📈 More than $50 million ARR: Good: $250k, Great: $300k+

Of course, there are notable outliers that stretch what’s possible as SaaS companies get big. Public SaaS companies see a median of $283k ARR per FTE and a top quartile of $369k ARR per FTE based on data powered by the team at Virtua Research. A few examples:

• Box: $420k

• Splunk: $455k

• Adobe: $617k

• Twilio: $771k

• Dropbox: $799k

Take this data with a (big) grain of salt. What “good” means varies a ton based on your scale, how much you invest in future growth opportunities, where you hire employees and more. More on that later.

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The bar is getting higher

There’s a much higher bar for efficiency than before; median ARR per FTE jumped year-on-year. While we’re not quite in the one-person unicorn utopia envisioned by Sam Altman, SaaS companies really are doing more with less. 

ARR per FTE has increased across the board — especially among companies between $5-50M ARR. For many businesses, this looked like the delicate balancing act of reducing headcount from the 2021-2022 peaks while continuing to scale revenue.

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Don’t optimize for ARR per FTE too early