What is the Efficiency Rule?
The Efficiency Rule is a measurement for how smaller companies balance growth and profitability. According to the efficiency rule, a healthy SaaS company will have a positive ratio of net new ARR to cash burn.
How to Calculate Your Efficiency Rule Ratio?
Efficiency Rule Calculation
Net New ARR / (Billings – OPEX)
How to Improve Efficiency Rule Performance?
If a company is rapidly increasing sales and marketing (S&M) expenditure, net cash burn will likely be greater than the net new bookings rate. This should be viewed in conjunction with CAC to fully understand efficiency of burn. Companies with a low efficiency score that are not expanding S&M spend may have productivity issues that need to be addressed.
