The software-as-a-service sector, which had experienced a vibrant 21% annual revenue growth just a few years ago, saw that metric sink to just 12% in 2024, according to a new analysis by BDO.
The news was even worse for enterprise-sized SaaS firms (those with more than $1 billion in sales), with last year’s revenue growth falling to just 10%. Midsize players (with $250 million to $1 billion in sales) saw that growth slip slightly to 15%, after peaking at 28% in 2021.
“Inflation is once again ticking up and interest rates remain elevated, raising the cost of capital and of standard business operations, and potentially causing consumer spending to contract,” wrote BDO, which reviewed financial data for 115 publicly traded SaaS companies.
The first quarter of this year brought no relief, as SaaS revenue growth was actually -2%, equaling the sector’s poor quarterly performance in early 2024. BDO noted that there may be some seasonality in play, as “the first quarter marks the beginning of spending annual budgets for many” and “companies and consumers alike may be seeking to tighten their belts at the start of each new year.”
BDO opined that by the end of 2025, the industry’s growth will reflect a similar trajectory as 2024, with revenue picking back up in subsequent quarters.
In fact, while revenue growth is down, BDO determined that an industrywide focus on profitable growth is starting to pay off. Both midsize and enterprise SaaS companies are reporting reduced costs and efficiency gains, the report noted.
R&D spending as a percentage of revenue was flat in 2024 at 24% for both enterprise and midsize SaaS companies, following an overall 6% decline in 2023. SG&A spending as a percentage of revenue declined 8% in 2023 and an additional 6% in 2024, settling at an average of 49% of revenue that year.
Revenue per employee, meanwhile, leaped by 17% last year, driven by a whopping 47% gain for enterprise-sized SaaS companies, from $417 to $615.
Some of that gain resulted from organizational restructuring that included layoffs during 2024 and into early 2025, BDO noted. However, the report credited much of the improvement to increased usage of artificial intelligence: “With its ability to automate and streamline tedious and time-consuming manual tasks, employees can direct more of their time toward value-add initiatives and thus generate more revenue.”
BDO for the first time this year reported cash from operations as a percentage of revenue, which averaged 26% for enterprise companies and 19% for midsize ones.
