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ARR per FTE
Scaling SaaS teams while maintaining efficiency
"We need 68 employees to achieve X by 2025".
I read this in a pitch deck the other day. It made me wonder how many human resources are really needed to reach a certain stage in SaaS.
In the realm of SaaS companies, success hinges on striking a delicate balance between scaling teams and maximizing ARR. This dual challenge presents a unique conundrum: how to expand the workforce while ensuring that each employee contributes efficiently to revenue generation?
The equation seems straightforward: More hands on deck = increased revenue. Yet, the reality is different. Without careful consideration, scaling your team can give rise to the so-called Ringelmann Effect (or “Social Loafing”), a phenomenon where individual productivity decreases as group size increases. The result: bloated teams that fail to meet expectations and, in the worst case, lead to layoffs.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/2b05e7ed-ffb5-46af-b14b-b67a2cc5097b/image.png)
Ringelmann Effect | Source: House of Van Schneider
Certainly, the Ringelmann effect is one of the reasons why growth rates of VC-funded SaaS companies (which tend to have much larger teams) are not significantly higher than those of bootstrappers.
A great and simple metric to track if you are able to keep that effect in check is ARR per FTE (Full-Time Equivalent). If you only have full-time employees, this is the same as ARR per employee.
Kyle Poyar of OpenView - one of the thought leaders in SaaS - recently published some benchmarks, broken down by ARR range:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/4f409ba9-0cfa-4fa4-84b3-d40fbb638d39/1682870546227.jpeg)
ARR / FTE Benchmarks | Source: Kyle Poyar (OpenView)
This appears to be in line with median values for the broader SaaS market from a recent SaaS Capital report:
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/9449c78d-6637-4b83-908a-d562db76d897/image.png)
Revenue per Employee | Source: SaaS Capital
Not surprisingly, however, the report also confirms that VC-backed SaaS companies are less efficient in this regard.
![](https://media.beehiiv.com/cdn-cgi/image/fit=scale-down,format=auto,onerror=redirect,quality=80/uploads/asset/file/fca82ad5-b3d0-4676-86a6-2604d31122e6/image.png)
Of course, you should always look at the bigger picture and not at ARR per FTE as an isolated metric. However, it can provide a good guideline to manage team growth wisely and avoid inflating the team without achieving the desired outcome.
A few outliers that take it to the extreme: