The Growth Efficiency or Growth Efficiency Index metric is another rule of thumb. In my experience, I find application of this method somewhat useful for private SaaS companies, but only as another parameter to augment your growth analysis. The main use case is in estimating burn rate at any given growth rate. The main shortcoming is lack of consensus on the standard, although blog posts suggest a figure of 1.0. Also, we can also use a variety of other methods to benchmark your company’s burn rate.
The equation is as follows:
We can use the T2D3 rule to frame an example. Let’s assume that a company grows 3x annually from $6M ARR to $18M ARR resulting in $12M of Net New ARR. The GEI suggests that you can burn $1M per month to achieve this growth.
Public SaaS companies produce highly variable metrics that are not useful. For example, Elastic NV has a GEI of 11, while Dropbox has a GEI of -2.3.