Nordic B2B
Software Growth

The growth rate in 2023 was 35%, compared to 33% in our 2022 survey

The small companies, with under € 1M in revenue saw declining growth rates, from 66% in 2022 to 60% in 2023, while companies in the range €1M to €10M showed improving growth rates vs 2022.

We also saw an increase in growth champions (companies with 40% or higher growth rate) during 2023, from 28% in 2022 to 35% in 2023, highlighting that there are many companies out there that are succeeding despite a more challenging overall business climate.

Growth remains the most important metric for software companies, but profitability is becoming a clear number two

50% of all surveyed companies rated profitability as a top metric, up from 38% in 2021.

For companies with more than €10M in revenue profitability was on a tied first place, with 71% of all respondents reporting both growth and profitability as a top three metric.

Churn received higher attention, despite a slight improving trend for churn in 2023. Fewer companies than before reported CAC-payback as a key metric, despite many saying that sales execution is a key challenge.

Net growth sentiment going in to 2024 slightly more negative than one year ago

24% of respondents believed in a deaccelerating growth rate in 2024 vs 2023, up from 17% last year. Share of respondents believing in an accelerating growth rate in 2024 was 50%, compared to 52% one year ago.

The biggest negative shift can be seen in companies with €5M or more in revenue. This can be a symptom of increasing challenges to scale B2B software companies.

% believing in accelerated growth rate − % believing in deaccelerated growth rate = Net growth sentiment

Median gross margin across all companies is 85%, top quartile is 90%

Gross margin is a key metric to understand true scalability for B2B software companies.

Gross margin should include all variable costs related to delivering your service. These typically include hosting/DevOps, service delivery, support and sometimes hardware. Companies with a lower share of recurring revenue often have a larger share of services impacting the company gross margin.

Takeaway: The software industry has historically had very high gross margins. However, increased cost of cloud computing and other “hidden costs” related to delivering your product may dilute this over time. Keep track of different revenue streams and costs in your accounting so that you can calculate gross margin per revenue stream and understand the true scalability of your business.

Sales execution is an increasingly complex challenge for Nordic B2B software companies

72% of all respondents reported sales execution as a top 3 challenge, up from 44% in 2021. It’s even more challenging for companies in the €5-10M revenue bracket.

Attracting and retaining talent continued to become less challenging, partly driven by lower hiring needs and potentially better access to talent than before.

Funding/financing remains challenging for unprofitable companies, with 38% of companies with -10% or lower EBIT margin reporting this as a top three challenge.

Enterprise sales is the most common go-to-market model among the B2B software companies, with 54% of all companies reporting this as a primary motion

Go-to-market models differs by ARPA, a higher ARPA is often correlated with longer and more complex sales cycles which requires an enterprise sales team, while companies with lower ARPA can be more efficient with marketing/inbound or inside sales teams. Getting your go-to-market model right is crucial to be able to scale a software company.

The average CAC payback continues to move upwards

This reflects the challenges that Nordic B2B software companies see in sales execution.

Size of company still mattered, where smaller companies generally report lower CAC payback times. But the go-to-market model also impacts your CAC payback benchmark. Companies with an inside sales go-to-market model reported the lowest CAC payback time on average, while companies with an enterprise sales go-to-market model reported the longest.

Large spread between bottom and top performers in sales per quota bearer

Top quartile performers reported €400k in average sales per quota bearer, while bottom quartile performers only reported €170k.

Larger companies reported higher average sales per quota bearer. As your software companies scale, it is common to add more specialized roles in the sales team, including Sales Development Representatives (SDRs), pre-sales and sales operations. With more support functions around the quota bearer, they should be able to close more sales.

Quota bearers selling large and complex solutions with a high ARPA¹⁾ also often have more support in the process, leading to higher expectations on sales per quota bearer.

Companies with high growth rates spend more on marketing

Spend was relatively similar across revenue categories, with the exception of companies with over €25M in revenues that reported a lower relative spend.

Companies with very strong growth rates, above 50% in 2023, spent significantly more on marketing than others, at c. 8% of total revenue.

Spend on marketing was relatively similar across geographies, with Danish companies spending more on marketing on average compared to other Nordic peers.

Nordic B2B software companies continue to focus on nurturing and growing with the existing customer base

Upsell on existing customers has increased 4 percentage points in importance compared to 2022, while investments in marketing and FTEs decreased.

The shift to nurturing the existing customer base already started in 2022, but the survey shows that this focus will persist in 2024. However, growth will likely have to come from upselling new functionalities or users as pricing is less of a focus area compared to last year.

Hiring new salespeople or engineers is seen as less of a key lever for growth for the surveyed companies compared to the last two years. This is potentially a sign of increased efficiencies across software organizations, partly impacted by the increased use of AI.

Average NRR at 106% in 2023

NRR declined c. 4 % points compared to 2022, despite higher price increases.

When excluding price increases for the existing customer base, NRR fell to under 100% on average in 2023. This means that companies in the survey saw more churn and downsell than upsell if excluding price increases in 2023.

Again, companies with a higher ARPA¹⁾ should aim for a higher NRR than companies selling lower priced solutions. Top performers with an ARPA¹⁾ of € 100k or higher saw an NRR of 119% in 2023.

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)

Companies with a higher ARPA¹⁾ were typically able to service a higher revenue base with their customer success management and support employees

Ability to support a large revenue base with your CSM and support employees is critical to achieve scalability in your business.

A lower ARPA is correlated with a high number of customers that often require support. Taking a strategic approach towards the CSM and support function and working with things like self-service, improved UX in product and AI support tools can increase the revenue base each CSM and support employee can handle.

Average annual churn at 4.9% in 2023

Average churn has decreased by 0.4 percentage points compared to 2022, but is still above 2021 levels.

It’s good news that the B2B software companies in our survey have managed to decrease churn levels from 2022, pointing to the strong product offerings among Nordic software providers.

Takeaway: Companies with a higher ARPA¹⁾ typically sell more integrated and complex solutions and should therefore expect a lower churn. Your churn targets should be adjusted based on the type of solution you provide.

Nordic software companies continued to increase prices in 2023, at 6.8% on average

Finnish companies increased prices the lowest among the Nordics, while Danish companies were more aggressive on average.

Companies selling solutions to smaller customers were generally more successful in increasing prices in 2023, while enterprise focused customers reported less price growth.

Looking forward pricing is less of a focus for software companies. 18% said that pricing is a top three priority for growth in 2024, down from 22% one year ago.

In contrast to 2022, we saw some correlation between churn and price increases in the 2023 study

Less than one third of all companies increased prices by 4% or less. These companies also reported relatively lower churn levels, 3.4% versus 5.4% for companies that raised prices by 5% or more.

Understanding your customers and the real value that you provide is essential to set your pricing strategy and be able to execute on price increases over time. A large share of companies in the survey were able to increase prices significantly without incurring higher churn. How aggressive your competitors are on pricing and targeting your customers is another key input to set a winning pricing strategy.

Nordic B2B software companies report an impressive NPS¹⁾, at 46 on average, but slightly down from 47 last year

Where you are on your growth journey impacts the NPS benchmark. Smaller, early-stage companies, are generally selling to first adopters that should be excited about your product, while larger companies often must address the broader mass with a lower likelihood to recommend.

Takeaway: NPS¹⁾ is a good indicator of future Net Revenue Retention (NRR). Happy customers become advocates for your solution and create a virtuous cycle driving both inbound leads and conversion. The Customer Success Management (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 for the second year in a row.

What is NPS: Net Promoter Score (NPS) is a customer loyalty and satisfaction measurement taken from asking customers how likely they are to recommend your product or service to others on a scale of 0-10. NPS= % share of Promoters (9-10) - % share of detractors (1-6)

Hiring and retaining talent has gone from a top challenge in 2021 to only 13% of companies reporting this a key challenge in 2023

Interestingly this trend holds true for all revenue sizes, for profitable and unprofitable companies as well as for slow and fast-growing companies.

This can be an effect of reduced demand as many companies in the survey have decreased their focus on hiring more employees to drive growth, and trying to find more efficient growth avenues, supported by AI.

We have also continued to see large layoffs in the tech sector during 2023, providing a larger pool of talent for Nordic B2B software companies to hire from.

However, our experience is that companies still compete for the top talents in the industry.

Average employee churn at 7.6%, down from 8.4% in 2022

Similarly to 2022, employee churn was higher for larger companies. In 2023 companies with 100+ FTEs saw an employee churn of 9.2% in average.

While highly profitable companies still reported the lowest employee churn figures, the correlation between the two factors was weaker in 2023 compared to 2022, perhaps signalling an increased risk appetite among employees.

Salaries were increased by 4.5% on average in 2023

Expectations going in to 2023 was somewhat higher, at 5.4%, indicating that companies have been good at controlling costs.

Companies under €5M in revenue increased salaries more, by 4.8% in average, while companies with €10M or more in revenue increased salaries by 4.0% in 2023.

Expected average salary increases in 2024 are at 4.6%. We can see a correlation between higher salary increases in 2023 and higher planned salary increases in 2024. Salary increases often set expectations for future years, which should be considered when doing salary reviews.

Salary increases in 2023 had little effect on employee churn, at least short term

Companies that either increased salaries by more than 6% or less than 2% reported the lowest employee churn figures in 2023.

Takeaway: Beyond compensation, software companies are advised to address a wide range of factors to retain employees. This includes fostering personal growth, providing career opportunities, nurturing a positive culture, and communicating a clear company vision.

This year we asked where Nordic B2B software companies find themselves on the AI journey; 11% reported that AI is central to core business functions.

Smaller companies have been faster at adopting AI to the core of their business functions. Larger companies, with €25M or more in revenue, were more likely to already be implementing AI into operations.

Companies with revenues between €1M and 25M are falling behind. This may be attributed to legacy systems within their organizations and products, which can render AI adoption more complex and time-consuming. Additionally, these companies often lack the resources that larger companies possess for AI investment.

• Not Started: No engagement or exploration of Generative AI
• Experimenting: Running pilots or early-stage implementations
• Exploring: Researching and considering Generative AI possibilities
• Implementing: Actively integrating Generative AI into operations
• Integrated: Generative AI is central to core business functions

AI can be implemented in both internal operations and to improve the offering. Companies in the survey reported roughly equal initiatives on both.

Improving efficiency in engineering and product development is the most common area where companies look to implement AI. Advancements in this area could allow software companies to work with smaller and more focused developer teams in the future.

Roughly two thirds of companies reported that they believe they can add new and/or improve existing features / functionality in the product with AI. Roughly one fourth believed that AI will introduce new ways for customers to interact with their products.

Only 4% of companies believe that AI will not have a major impact on their business.

Companies go international already at an early stage

Nordic companies are often compelled to internationalize at an early stage due to the size of their domestic markets. Among companies with revenues ranging from €0-1M, 83% of their revenues originated from the domestic market. In contrast, for companies earning more than €25M, domestic revenues accounted for only 49%.

61% of companies in the €5-10M revenue range stated that international expansion is a top growth priority - relatively the highest share among the surveyed. However, it is also within this group that the majority cite internationalisation as a top challenge. Success in new markets can bolster growth, yet it often presents a complex and demanding effort.

Companies with over € 5M in revenues show higher growth if they have above average exposure to international markets

Interestingly companies with more international revenue than the average outperformed others in growth for all size categories except for companies with € 0-1M in revenues. Going international too early, before finding a strong product market fit in your home market, may result in difficulties to drive growth.

However, profitability was lower on average for companies with a relatively higher share of international revenue, pointing to the fact that it’s often costly to enter new markets. Tracking cost, and revenue, separately from new markets can help you understand the underlying profitability on your home markets and how much you are investing in growth on new markets.

Vertical software companies outperformed horizontal companies

Vertical focus enables efficient sales processes and sticky customer relationships that drive growth, despite a smaller total addressable market compared to horizontal companies.

Vertical companies are also better at keeping their customers and increasing prices over time. Interestingly horizontal companies reported higher NPS than vertical companies, 49 vs 34 respectively.

Average revenue per FTE at c. €170k but with high variability by size category

We see a clear increase in revenue per FTE for Nordic B2B Software companies in 2023 compared to companies in our 2022 survey. We believe this can be partly explained by Nordic companies focusing on growth while keeping hiring plans focused.

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 revenue per FTE.

The composition of employees varies with the company's size and primary business model.

Smaller software companies, particularly those with revenues under €10 million, often allocate nearly 50% of their workforce to engineering and product development.

As companies expand, they face increased complexity in their operations and services. Consequently, there tends to be a shift in focus from engineering and product development to professional services, ensuring customers fully benefit from the product. This shift also allows the company to introduce charges for services that may have been free when the business was smaller.

In this year’s study, the employee composition remained broadly consistent with previous years, albeit with a marginally smaller proportion of administrative and finance staff.

Software companies are lacking in gender diversity, with an average of only 26% female employees, a decrease from 33% noted in our previous study. While larger companies are approaching an average of 40% female employees, many organizations still have a significantly lower proportion.

Despite awareness of the benefits that a diverse organization brings — including heightened employee satisfaction, increased innovation, and enhanced customer relationships — the issue of diversity remains, particularly in smaller companies. One strategy to address this imbalance is to encourage more female entrepreneurship in the B2B software sector.

Takeaway: Ideally, no gender should constitute more than 60% of a company's workforce. A pronounced imbalance tends to perpetuate itself. Establishing explicit goals for gender diversity, ensuring fair gender representation in recruitment processes, and fostering inclusive workplace environments are critical steps toward redressing the balance.

This year we asked about a hot topic; how to measure product development efficiency.

49% of companies reported that they track R&D expenditure as a percentage of Annual Recurring Revenue (ARR), making it the most common metric used.

Differences in key metrics were observed among companies of varying sizes. 50% of companies with €0-1M in revenue indicated that they measure deployment frequency, compared to only 22% of companies with €25M or more in revenue.

Only 28% of companies in the €0-1M revenue bracket track R&D spend as a percentage of ARR, in stark contrast to 78% of companies with €25M or more in revenue.