Nordic B2B
Software Growth

Most surveyed Nordic software companies believe in an accelerating growth rate in 2023 vs 2022

52% of all surveyed companies anticipate an accelerating growth rate in 2023 vs 2022, while 17% anticipate a slowing one. Finnish companies were the most positive, with 65% believing in an accelerating growth rate in 2023.

The average growth rate in 2022 is 33% (34% in 2021) across the whole sample, while the average forecasted growth rate in 2023 is 37%. Smaller companies tend to have a higher growth rate as they are scaling up, and they are also more positive about the growth outlook for 2023.

Growth champions: 28% of all surveyed companies reported a growth rate of 40% or higher in 2022, which we call Growth champions. Growth champions are in all revenue ranges but are the most prevalent in the € 0-1M range where 65% of surveyed companies were Growth champions.

Growth champions stand out

Growth champions are more often built on public cloud, focus on smaller companies, expand internationally earlier and have a higher share of recurring revenue.

Just like in 2021, Growth champions reported a lower EBIT margin than others, at -6% vs 0% in 2021. However, the lower profitability also came with a lower average growth rate, 71% in 2022 vs 77% in 2021.

Others also reported a lower EBIT margin in 2022 vs 2021, but compensated with a slightly higher average growth rate.

Growth champions derive 17% of their revenue from “Rest of World” compared to 11% for others. As we have seen previous years, Growth champions are awarded for their ability to go international, even though they are often smaller, earlier stage, companies.

Takeaway: Nordic software companies continue to invest heavily in growth, but there are signs of a more difficult market climate

Compared to 2021, more Nordic software companies reported "Sales Execution" as a key challenge in 2022

60% of all respondents reported sales execution as a top 3 challenge, up from 44% in 2021.

Attracting and retaining talent has become less of a challenge in 2022 vs 2021. The biggest shift can be seen among € 0-1m companies, where only 12% of surveyed companies reported this as a key challenge vs 39% in 2021. More on this topic further down in the report.

Funding/financing has not increased significantly as a challenge in 2022. However, Growth champions struggle with this more often compared to others (21% vs 12%), which could point to the fact that investors have shifted focus from growth to profitability.

Growth champions reported fewer challenges related to attracting and retaining talent than others (24% vs 34%). Relatively fewer Growth champions also reported sales execution, marketing execution and international expansion as a key challenge.

Some regional differences exist in the Nordics

Finnish companies report sales and marketing execution as a key challenge more often than their Nordic peers, while Norwegians see internationalization and talent as relatively bigger challenges.

Product development is a relatively bigger challenge in Sweden, while almost no Finnish companies reported this as a top challenge.

Median CAC¹⁾-payback across all companies at 12 months

This is up from 2021, when the median was 6-9 months.

Larger companies reported longer CAC-payback than smaller companies. As software companies grow, they often start looking beyond their initial target segments while scaling the commercial organization, both potentially impacting CAC-payback negatively.

Interestingly Growth champions reported a better CAC-payback than others, even when controlling for company size, indicating that they have found working formulas for investing in growth.

Only 64% of respondents reported their CAC-payback in the 2022 survey, down from 85% in 2021. The metric was also less important in 2022 than 2021, with 10% reporting it as a top metric vs 13% in 2021.

Takeaway: At Monterro, we target 9-15 months CAC-payback as a rule of thumb. A high net revenue retention or low churn can justify longer CAC-payback periods while companies with a product-led growth strategy should have a lower CAC-payback.

Average sales per quota bearer at c. € 320k across the whole sample

Growth champions reported a lower sales per quota bearer, at approximately € 300k vs € 330k on average for others.

Growth metrics like sales per quota bearer often decline during times of high growth as companies recruit and train new people. Growth champions have a lower average sales per quota bearer, but their sales and marketing organization make up 26% of all FTEs on average, vs only 17% for others. We often recommend to measure the established team separately from new recruits to track how the existing business is performing.

Takeaway: Sales targets should differ based on go-to-market model, seniority of your sales team, regions served, etc. We spotted some trends in the survey:

• A higher share of sales FTEs correlated with lower performance per quota bearer. Hiring many salespeople drives the metric down in the short term but creates the foundation for growth in the future.
• Western European and North American salespeople often demand higher salaries, but also generate more sales per FTE for the company.
• Recurring revenue is worth more than non-recurring in the long run, and targets per quota bearer should be higher if your share of recurring revenue is lower.

Growth remains the most important metric for software companies

72% of all surveyed companies rated Growth as a top metric, down from 77% last year.

85% of Growth champions reported growth as a top metric, vs only 66% for other companies. Sales pipeline increased in importance, with 34% reporting it as a top metric vs 31% in 2021.

Defensive metrics like profitability and customer net revenue retention both saw an increase of 5 percentage points compared to the last year study.

Last year 48% of € 0-1M companies reported cash balance as a top metric; this number is now down to 24%.

See appendix for dataset on all metrics.

Higher focus on nurturing what has been built, and managing costs, in 2023

Upsell on existing customer base has increased 9 percentage points in importance, while marketing and sales spend is decreasing.

Nurturing the customer base and expanding upsell has increased significantly on the growth agenda. While it was already #1 last year, the position has been further strengthened. With less focus on outside expansion to save costs, companies are looking inward for growth opportunities.

Managing costs is a clear trend compared to the expansion plans for 2022. Costly initiatives like expanding to new customer segments, expanding the offering or increasing sales and marketing spend are all less frequent topics on the growth agenda for 2023 vs 2022.

International expansion does, however, remain high on the agenda, indicating longer-term initiatives are still in the plans.

Average annual churn at 5.3% for 2022

Average churn has increased by approximately 1.3 percentage points since 2021.

Interestingly, horizontal companies are seeing a much higher churn than vertical software companies.

While it’s not feasible for most companies to make such a switch overnight or even within a year, horizontal software companies should consider what can be done in terms of verticalization.

Takeaway: A tougher economic climate may result in higher overall churn. While 5.3% is still relatively low, it’s important to keep an eye on the metric and proactively work on retention.

Average NRR at 110% for 2022

We see strong revenue growth from existing customers, despite higher churn levels.

Companies that target larger customers usually have a higher NRR. Smaller customers will, on average, have fewer opportunities for revenue expansion, so a land-and-expand strategy should not be the only growth vehicle.

NRR is similar for horizontal (110.5%) and vertical software (109.7%), suggesting that vertical software companies are better at retaining customers while horizontal companies are better at up-selling.

Growth champions also reported better NRR than others, at 115% vs 109% respectively.

What is Net Revenue Retention: NRR is the percentage of your recurring revenue retained over a year including the effects of upsell and cross-sell (revenue expansion)

Nordic B2B software companies report an impressive NPS, at 47 on average across the sample

A strong NPS is a measure for high customer satisfaction and a leading indicator for future growth.

Smaller companies and Growth champions performed better in general. Growth champions reported an average NPS of 59 vs 41 for others; the higher average score held true in all size categories.

Takeaway: NPS is a good indicator of future NRR. Happy customers become advocates for your solution and create a virtuous cycle driving both inbound leads and conversion, ultimately leading to “earned growth”. The CSM team plays an important role in driving a strong NPS, but it’s not always about the size of the team. Relatively large CSM teams correlated with lower NPS in our study.

What is NPS: NPS stands for Net Promoter Score. NPS is calculated based on customer survey results: % share of Promoters - % share of detractors

Price increases for existing customers lag new customer price increases, at 6.4% and 8.5% respectively

Growth champions have increased prices, and plan to increase prices, more than others on average

B2B vertical software companies have been more successful at increasing prices for both existing and new customers. Comparing the Nordic countries, Norwegian companies increased prices the most for existing customers, at 7.0% in average, vs 6.4% and 5.6% in Sweden and Finland respectively.

Growth champions stand out, not so much on increases for current customers but instead for new customers where they are increasing prices substantially more than other companies.

Takeaway: It’s often easier to increase prices for new customers, but you might end up with large discrepancies between customers in the long run. This can be difficult to correct in later stages.

Price increases for existing customers did not correlate with customer churn in 2022

Risk of churn is often something that comes up when speaking about price increases. Our survey found that the average churn rate was roughly the same, between 5.1% and 5.6%, for all companies regardless of the annual price increase that they had implemented. While the long-term risks of continued price increases should not be ignored, it seems that the short-term effects are relatively limited.

Takeaway: Software companies should be confident when designing their pricing strategies, as long as they maintain pricing power. Pricing power can be driven by several factors, including but not limited to a superior product, world-class service, market and competitive conditions.

Hiring and retaining talent is a lesser challenge for Nordic software companies

31% of all companies saw this as a key challenge in 2022, vs 41% in the 2021 study.

Larger companies, € >10M in revenue, continue to see talent as a key challenge at roughly the same level as 2021. However, of companies with under € 1M in revenue, only 12% saw this as a key challenge, down from 39% in 2021.

The same trend can be seen across Growth champions and others as well as profitable and unprofitable companies, indicating a broad shift on the market. The only outlier is Norwegian companies, where attracting and retaining talent is at a similar level as 2021, at c. 40%. This can be due to the relatively strong Norwegian economy during the year.

Several large Nordic technology companies, like Klarna, Trustly and Pleo have announced large layoffs during 2022, which can have a positive impact on access to talent for smaller software companies.

Average employee churn at 8.4%

Churn seems to increase once a company exceeds 50 employees, or if growth and/or profitability drops

Smaller companies usually have tighter connections between the employees, making them less likely to leave. This is increasingly difficult to sustain as the company grows.

We observed a strong correlation between profitability and churn, with significantly higher churn levels for unprofitable companies. This indicates that many Nordic employees value job stability over large growth potential.

Takeaway: It’s often time consuming and expensive to hire replacements when good employees leave. It’s important to build a strong company culture as you scale to ensure you have the right resources in place to fuel your growth.

Average ARR per FTE at c. € 105k but with high variability by size category

Software organizations increase ARR per FTE as they grow, highlighting the SaaS model scalability.

While the optimal size of a software organization will depend on a lot of factors, one thing is important to keep in mind: a successful SaaS business should increase ARR per FTE as it grows.

Takeaway: Scalability is a key value driver for SaaS businesses. That said, there could be periods where it makes sense to invest in the organization to accelerate growth despite a short-term drop in ARR per FTE.

The % share of FTEs in engineering increased and % share of FTEs in professional services decreased across all revenue categories, except for companies with € >25M in revenue.

Small software companies usually have a very high focus on engineering and product, with nearly 50% of FTEs working in these areas for companies with under € 10M in revenue.

As the company grows, so too does the complexity in the business and the offering. This generally results in a shift from engineering and product to professional services. This ensures that customers get the most out of the product and enables the company to charge for services that were perhaps free when the business was smaller.

CSM made up c. 13% of all FTEs in 2022, up from 11% in 2021, pointing to the shift in focus for many software companies.

Software companies are still lacking in gender diversity, with an average of 33% female employees

While larger companies are closing in on 40% female employees on average, there are many organizations with a significantly lower share.

Despite the well-known positive effects of a diverse organization, such as increased employee satisfaction, increased innovation and improved customer relationships, diversity is still lacking, especially in smaller companies. Encouraging more female founders in the B2B software sector could be one tool to help balance the scales.

Takeaway: As a rule of thumb, no gender should make up more than 60% of the workforce. A strong imbalance can often reinforce itself. Setting clear ambitions for gender diversity, ensuring sufficient representation from both genders in recruitment funnels and designing inclusive workplaces can help to improve the balance.

Average salary increase at 4.1% for 2022

Expected average salary increases in 2023 at 5.4%. Smaller companies have increased salaries less in 2022, while planning higher increases in 2023.

Nordic software companies have increased salaries slightly above the union-driven agreements in 2022, but still below the inflation, resulting in salary decline in real terms. For 2023 Nordic software companies are again planning to increase salaries slightly above the level indicated by union negotiations but more closely in line with the forecasted inflation for 2023.

Interestingly there is a large difference in realized salary increase and planned salary increase between smaller and larger organizations, with larger ones being more consistent in their salary increases over different years while smaller companies plan to compensate lower increases in 2022 with higher increases in 2023.

Salary increases in 2022 had little effect on employee churn, at least in the short term

While salary increases are often thought of as a way to keep employees, there is very little correlation between salary increases and employee churn in our data. This indicates that salary increases have little impact on retaining employees, at least in the short term.

Takeaway: In addition to compensation, software companies should work with a broad set of factors to retain employees, including but not limited to personal growth, career opportunities, culture and company vision.