26% of SAAS companies with at least $15MM in GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher.

Statistic Info

art 1 of the survey results focuses on growth rates, go-to-market trends and cost structure. A new highlight in this year’s survey is data on balancing growth and profitability in SaaS companies, commonly known as The Rule of 40%.

You can find Part 2 results here. Part 2 compares application delivery methods, covers more on operational costs, and offers data on gross margins, contract terms, churn rates, capital requirements and accounting methods.

We’ve also created the forEntrepreneurs 2016 SaaS Infographic. The infographic pulls together major takeaways from the SaaS Survey and ties in advice and insights on key metrics.

As expected, many of the fastest growing companies are among the smallest. Eliminating them brings median growth rates down ~10 percentage points. Median growth rates are consistent with last year’s results. However, this year’s respondent pool was more evenly distributed.

Survey results indicate that companies in the $7.5MM-$15MM range are among the fastest growers. The median growth in this range is much greater than the median of companies half their size. Interestingly, there was a similar bump-up last year, but for companies between $5MM-$7.5MM.

More SaaS + Software Stats

54% treat upselling and add-on sales as high priority

Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases

In 2017, IBM generated 37.8 billion U.S. dollars in global IT services revenue, making it the largest IT services company in the world in terms of net sales

Growing faster has twice as much impact on share price as improving margins

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

Growth rate accelerates in the expansion stage ($2.5M – $10M ARR)

The median TTM revenue growth rate + adj. EBITDA margin for publicly traded SaaS companies was ~37%, implying that just under one half met or exceed “The Rule of 40%”

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The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

Best-in-class SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month

More Growth Strategy Stats

The fastest growing SAAS companies averaged $250k in MRR and were only losing around 3.2% of that revenue each month to churn

51% of large (revenue >$2.5million) SaaS companies use field sales as their primary method of distribution

Best-in-class SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month

In 2018, the market size of information technology outsourcing amounted to 62 billion U.S. dollars.

SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer

Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts. Source: ForEntrepreneurs

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

Achieving a SaaS Quick Ratio of 4 is a good benchmark for young, high-growth companies but the equation changes as those companies reach scale