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R&D Productivity

What is R&D Productivity?

R&D Productivity is a performance measure of how much new revenue is associated with dollars invested into R&D within a technology company.

Alternate names: R&D Magic Number, R&D Factor, R&D Performance

How to calculate R&D Productivity

ƒ Sum(Current Year Revenue) - Sum(Previous Year Revenue) / Sum(Previous Year R&D Expenses)

What is a good R&D Productivity benchmark?

Private companies under $50 million should generally target an R&D Factor of 1.7, which means at least $1.70 in new revenue is generated for every dollar spent towards R&D. This is often coupled with high growth rates. Meanwhile, private companies with over $50 million revenue can also have an R&D Productivity target of 1.7, but may have lower growth rates. Finally, private companies in the IPO track generally have a median R&D Productivity of 1.8.

Example

A private company generated $40 million revenue and had $5.8 million in R&D expenses last year. This year, the company generated $50 million in revenue. This means that the company has an R&D Productivity of 1.7.

More about this metric

R&D Productivity was introduced as a concept by OPEXEngine to provide financial professionals and executives with an indicator of how R&D spend - specifically software development, design, and product management - links to increase in revenue. It mainly applies to SaaS / technology companies that are in growth-stage where R&D can be split into new product development and maintenance or reducing technical debt.

Tracking this metric can provide insight into the effectiveness of current R&D spend and can be a useful tool when planning how to allocate resources for the future. While R&D spend is one factor that influences incremental revenue growth, it is important to look at other operations that may drive revenue growth as well, such as sales and marketing spend. R&D Productivity may vary based on the size and growth stage of the company.

Additional R&D Productivity recommended resources

Read the full report on R&D Productivity from OPEXEngine.Read about R&D Spend benchmarking for SaaS companies.

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