Operating Expenses

Total operating expenses fell from 118% of revenue (2022) to 88% (2024) — a 30-point improvement — and EBITDA margin moved from -47% to -12% over the same window. That looks like a turnaround. It is one, but only on the cost side: Rule of 40 achievement fell from 11% to 5% across the same period, because the margin gains came entirely from cutting spend, not from reaccelerating growth.

The Cost-Cutting Era

R&D, S&M, and G&A as a percentage of revenue all declined from 2022 to 2024, but not evenly: R&D fell from 37% to 29% of revenue, S&M from 54% to 37%, and G&A from 27% to 22%. S&M absorbed the largest single cut in percentage-point terms, which is notable given that the same period saw CAC payback stretch, not shrink (see the CAC Trap section) — the spend cuts happened even as the return on the remaining spend was getting worse.

Reading the chart: total OpEx compressed from 118% to 88% of revenue across 2022–2024, driven proportionally across all three cost lines rather than concentrated in one — this was a broad efficiency push, not a single-function reorganization.

The Rule of 40 Problem

Rule of 40 achievement — the share of companies whose growth rate plus profit margin sums to at least 40 — fell from 11% (2022) to 5% (2024), despite EBITDA margin improving by 35 points over the same window. That combination is only possible if growth deteriorated faster than margin improved, and the survey data confirms it did: the cost discipline did not buy back the growth that was lost.

This is the clearest evidence in the dataset that cost-cutting and retention health are not the same axis. A company can improve every cost-side metric it tracks internally while its Rule of 40 score — the metric that actually correlates with valuation multiples and durable growth — keeps falling.

Cost Cuts ≠ Retention Strategy

The mechanism connecting OpEx discipline to retention is indirect but real: R&D compression limits the product investment that would otherwise support expansion (see the Expansion Myth section for where expansion concentration by ARR size comes from), and S&M compression, done without addressing the underlying CAC payback and churn-tax problems documented elsewhere in this report, just slows the rate at which new-logo revenue can offset an unchanged churn tax.

None of the three levers available — price increases, cost reduction, or revenue-model redesign — is sufficient alone. Cost reduction is the one most companies pursued in this window, and it bought margin without buying growth. The data suggests the companies actually improving Rule of 40 are pairing cost discipline with the contract-term and downsell interventions documented in the Contracts and Downsell sections, not substituting one for the other.