Fall Planning and R&D Spend: Benchmarks
- wetzel8716
- Sep 15
- 2 min read
Budget season is here, and for many CEOs—especially those in private equity–backed software companies—the big question isn’t whether to invest in R&D, but how much is enough?
Benchmarking R&D Spend
Across SaaS companies, the range is wide:
VC-backed firms often spend 22–34% of revenue on R&D, leaning into growth and innovation.
PE-backed firms tend to spend less, closer to 17–22%, balancing investment with efficiency.
Early-stage companies may spike above 40–50%, chasing product-market fit.
Mature companies often trend down into the mid-teens, once their product line stabilizes.
What’s Included in R&D?
Before comparing to benchmarks, make sure you’re using the same definition. Typically R&D includes ALL of the following (not just those working on "innovation" projects):
Engineering & development (software engineers, QA, data science).
Product management (roadmap, discovery, outcomes).
UX & design (customer experience, interface design).
Platform & infrastructure teams supporting innovation.
It usually does not include Marketing, IT, customer support, or implementation services.
Why PE-Backed Companies Are Different
PE investors emphasize efficiency and EBITDA expansion. That can mean pressure to trim R&D to the lower end of the benchmark range. But this is where the R&D efficiency paradox shows up: cut too far, and you risk stalling innovation, weakening retention, and reducing enterprise value in the long run.
The key is to balance efficiency with focus:
Don’t standardize R&D headcount ratios blindly.
Double down on areas that drive differentiation.
Be explicit about what “innovation bets” you’re still funding.
A Back-of-the-Napkin Test
Here’s a quick way to test your funding level:
Add up engineering, product, and design headcount + spend.
Divide by annual recurring revenue.
Compare to the benchmarks above.
If you’re a $100M ARR PE-backed SaaS firm spending 18% on R&D, you’re on target. But ask: how much of that spend is innovation vs. maintenance? If 80% is keeping the lights on, you may be underfunded strategically—even if you’re at benchmark.
Final Thought
This fall, don’t just treat R&D like a line item to optimize. Treat it like a portfolio: balancing core maintenance with strategic bets that fuel long-term growth.
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