Research and Development (R&D) Productivity is a metric that measures the efficiency and effectiveness of a company’s investment in research and development activities. It assesses how well a company can generate valuable and innovative outputs, such as new products, technologies, or processes, relative to the resources and investments dedicated to R&D.
It is calculated by subtracting the current year’s revenue from the previous year’s revenue and dividing it by the previous year’s R&D cost. For example, the company generated $50 million in revenue and had $7 million in R&D expenses last year. This year, the company generated $60 million in revenue. It means that the company has an R&D Productivity of 1.42.
ƒ Sum(Current Year Revenue) – Sum(Previous Year Revenue) / Sum(Previous Year R&D Expenses)
For a benchmark, private companies with revenue under $50 million typically aim for an R&D Factor of 1.7, meaning they generate at least $1.70 in new revenue for every dollar spent on research and development. At the same time, private companies exceeding $50 million in revenue may also target an R&D Productivity of 1.7 but might experience lower growth rates. Finally, private companies on the IPO track typically aim for a median R&D Productivity of 1.8.
Revenue
Operating Expenses
SaaS Magic Number
R&D productivity is measured by assessing the efficiency and effectiveness of research and development activities. Key indicators include the number of successful innovations, time-to-market for new products, resource utilization, and the cost-effectiveness of R&D efforts.
R&D productivity is measured by assessing the efficiency and effectiveness of research and development activities. Key indicators include the number of successful innovations, time-to-market for new products, resource utilization, and the cost-effectiveness of R&D efforts.
The relationship between R&D and productivity lies in the ability of research and development activities to drive innovation and enhance a company's overall productivity.