Balancing Cost Savings and Growth in Enterprise SaaS Startups

A big effort across enterprise SaaS companies during this period of economic uncertainty is taking another look at budgets - even though it may have just been blessed by the board a couple of months ago.

My analysis of the budgets across 15 series C+ companies shows an incredible disparity in approaches.

I was worried my sample base of 15 companies was too small, so I went and solicited the input of a dozen other leaders who together have insights across another 100 companies.

VC-backed companies continue to allocate a large portion of their budget to growth-oriented functions like product development, sales, and marketing:

1. The median spending was about 18% of revenue on product development.
2. Roughly 18–20% on sales & marketing combined.
3. General and administrative overhead was around 10–15% of revenue on average.

The rationale is simple: investing money into growth initiatives (like scaling sales teams, marketing campaigns, and feature innovation) can expand market share and ARR faster, ultimately yielding a bigger company even if near-term profits are sacrificed.

On the other hand, purely cost-cutting measures are less common at this stage, since under-investing in growth can be a strategic handicap.

Successful SaaS scale-ups typically try to improve efficiency without starving growth – for instance, hiring higher-performing commercial teams, optimizing customer acquisition cost or automating processes – rather than implementing deep cuts that undermine revenue generation.

Data from SaaS capital certainly corroborates this data:

Even as startups grow into the $10–20M+ ARR range, a substantial portion of their budget remains dedicated to growth-focused areas like product development and sales/marketing. 

Long-Term Impact of Overemphasizing Cost Savings 

Overemphasizing cost savings at the expense of growth can significantly hinder a SaaS company’s long-term trajectory. 

Both historical research and industry experience show that penny-pinching often leads to slower growth and missed opportunities. 

The problem with heavy cost-cutting is that it can stifle innovation and sales momentum – for a SaaS startup, this might mean an anemic product roadmap and underpowered go-to-market engine, which in turn depresses future revenue. Over time, these effects compound – the company’s growth rate can stall, valuation multiples shrink, and top talent might leave due to a stagnant vision.

By contrast, organizations that continued to spend on strategic growth initiatives based on data-driven decisions fared better in the long run. 

A Harvard Business Review analysis of 4,700 companies’ responses to recessions found that firms adopting an overly “prevention-focused” strategy (i.e. cutting costs across the board and slashing investments) had the lowest odds of outperforming their peers when growth resumed. 

In fact, companies that made the deepest cuts had only about a 20% probability of pulling ahead of competitors after the downturn. 

The same HBR study noted that companies which invested aggressively during the downturn (while rivals cut back) weren’t guaranteed winners – they had about a 26% chance of becoming post-recession leaders – but they still outperformed the pure cost cutters. 

One can conclude - is that 6 percentage point difference worth it?  It is that neither extreme is ideal: all-in cost shredding sacrifices growth, while unchecked spending can be wasteful. 

So…. we can look at the data of the winners from the last big downturn in the early 2000s. 

What the winners did:

The common thread among these winners was a dual focus on efficiency and innovation. 

These companies pursued selective cost cuts to eliminate waste (“defensive measures”) while simultaneously making smart growth plays (“offensive measures”) such as developing new products or expanding into new markets. This balanced approach yielded far better outcomes than either extreme strategy alone. 

In practice, that means streamlining operations and costs (fat) – e.g. optimizing team composition with top performers, negotiating better vendor rates, automating routine tasks, trimming underperforming projects – but continuing to nourish core growth “muscles” like product development and customer acquisition. 

Super simplistic example of a CRO optimizing sales team:

• Company A: Generating $20M ARR with a 10 person sales team that is operating at 80% sales effectiveness costs about $3M a year.
• Company B: Generating $20M ARR with a 20 person sales team that is operating at 50% sales effectiveness costs about $6M a year.

These companies continued building capabilities during a recession, even at the expense of short-term earnings. In other words, stakeholders understand that strategic investment is key to long-term value, and they reward companies that can both control costs and keep the growth engine running. 

The top quartile companies treat the growth vs. cost trade-off as a false dichotomy, achieving both through operational excellence. 

In summary - walking the tight rope

An overly cost-centric approach can “save” a company into crushed morale and stagnation.

Sustainable success in enterprise SaaS tends to come from balancing cost management with continuing investment in the drivers of future growth.  

But walking this tightrope requires the CEO to have three key leaders in place:

1. An FP&A-oriented CFO that doesn't just track numbers; they interpret data and create predictive models. This helps the leadership team identify where to allocate resources for the highest ROI - whether that’s investing in growth or trimming costs that no longer deliver value. The input comes from the sales and product leadership to carefully look at where to divest, and where to invest.
2. A Strategic CRO / Head of Sales that doesn't simply to bring in sales at any cost; rather, the best CROs think strategically about market fit, sales efficiency, and revenue quality. They work closely with product and marketing leaders to ensure a consistent customer journey that fosters retention and drives expansion. They are smart about performance management.
3. A Chief Product Officer that understands that they are the guardian of the company’s value proposition. They’re the voice of the user, AND a voice for the commmercial team - translating market needs into a product roadmap that generates both immediate and long-term returns. A scrappy CPO, in particular, thrives on iterative, quick-turn innovation - rolling out new features or improvements that keep customers loyal and attract new customers.

If you're a series C company and don't have these pillars in place, better get started on filling that gap now.

Who comes to mind as the best CRO, CFO, and CPO leaders you've worked with? Sound them out in the comments below!