SaaS

Annual Recurring Revenue

Detailed Description

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.

Created with Highcharts 11.1.0R&D ProductivityR&D ProductivityYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10012345Highcharts.com

How To Calculate

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.

Formula

ƒ Sum(Current Year Revenue) – Sum(Previous Year Revenue) / Sum(Previous Year R&D Expenses)

Benchmark

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

Created with Highcharts 11.1.0R&D ProductivityR&D ProductivityYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10012345Highcharts.com

FAQ's

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.