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ARR per employee is the measure of efficiency you’ve been looking for – londonbusinessblog.com

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If you want to break even, go APE

In the first delivery of our Cloud quarterly series of reports, we talked about how the market has shifted to valuing the profitability of cloud companies, even at the expense of growth (this thread on twitter takes a closer look at that data).

There is no shortage of efficiency metrics that cloud executives can track to better understand their overall economy. Sales and marketing efficiency metrics such as LTV-to-CAC, CAC payback, and the magic number have long been mainstays in board games and fundraising materials. As the market has changed, burn multiple (net burn/net new ARR) has emerged as a popular, comprehensive way to look at burn versus ARR growth.

However, the difficulty with these efficiency metrics is that they are not tangible in a way that is useful to your employees. They feel more like financial metrics than operational ones, and it’s hard for employees to execute on these concepts.

Product improvements can definitely have a big impact on sales efficiency, but those improvements are a derivative of product and engineering work rather than something that might feel top-of-mind. Burn multiple emphasizes having “less bad burn” rather than specifying which actions will actually increase profitability.

It is still necessary to be the winner in your market.

Our advice for cloud CEOs? At your next general meeting, or at your next one-on-one with functional leaders, align your team around ARR per employee — a metric we call APE.

APE is an extremely simple statistic that we believe could serve as your pole star as you navigate these volatile times.

Why should APE be the efficiency north star?

The cost structure of cloud companies is primarily driven by people. There are other costs to consider, such as cloud costs, real estate, and expenses for other SaaS applications that you need to run your business. But about 70% of your costs will likely be directly related to your employees. Ultimately, if you want your business to become more efficient, your workforce is the place to start.

An important point here: ideally, optimizing your workforce should be done through smart, deliberate hiring, not through a reactive workforce reduction. By achieving the former, your company can avoid the latter. When trying to implement this recruiting discipline across your organization, APE can be a powerful tool.


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