The Bessemer Efficiency Score measures how efficiently a SaaS company is growing. It was coined by Bessemer Venture Partners and unlike many other early-stage metrics used in venture capital which focus solely on growth - often deferring profitability to the future - this KPI weights growth with the actual way the company is investing money. It thus provides a more holistic understanding of the business' health.
The underlying assumption being, long-term growth is more stable and reliable than growth that comes with unsustainable spending.
It is calculated by taking the ratio between Net New ARR, which quantifies the net growth of the company revenues, and Net Burn, which measure the "speed" at which the business is spending its cash.
The components of the Bessemer Efficiency Score are:
New ARR = New ARR generated by new customers
Expansion ARR = New ARR generated by existing customers (i.e. upgrades)
Lost ARR = ARR lost by customers who churned or downgraded
Net New ARR = New ARR - Expansion ARR - Lost ARR
Total Annual Cash Sales = Total annual inflow of cash
Total Annual Cash Expenses = Total annual outflow of cash
Net Annual Burn = Total Annual Cash Expenses - Total Annual Cash Sales
To calculate your business Bessemer score using these components, the formula is:
Bessemer Efficiency Score = New Net ARR / Net Annual Burn
As a benchmark, Bessemer Venture Partners uses the score to classify companies into three primary groups:
Good → Score < 0.5
Better → Score between 0.5 and 1.5
Best → Score >1.5