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In other words, the typical round size for SaaS companies hasn’t changed materially over the past 16 years but the number of rounds has doubled, which has doubled the amount of capital a startup raises in aggregate before IPO. At least on the surface, the data indicates SaaS companies aren’t more efficient.

That pattern may be driven by an increasingly friendly financing environment or because of increased capital needs of the business or many other reasons. So the next question to answer is capital efficiency. In a future analysis, I’ll calculate the ratio of revenue dollars to VC dollars invested to get a sense of the reality of cloud capital efficiency per revenue dollar.

Tomasz Tonguz

More SaaS + Software Stats

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?

Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added

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

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business

Customer’s lifetime value (LTV)= average revenue per user (ARPU) / monthly churn rate

When determining Sales Capacity, “it’s worth noting that some percentage of new sales hires won’t meet expectations, so that should be taken into consideration when setting hiring goals. Typically we have seen failure rates around 25-30% for field sales reps, but this varies by company. The failure rate is lower for inside sales reps. can be counted as half of a productive rep”

More Growth Strategy Stats

To establish a revenue or lead-commitment based on your funnel metrics and revenue-growth goals, work backward from the gross revenue amount that marketing is responsible for generating (generally around 40%)

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

The average SaaS company spends just 6 hours determining their pricing strategy

A 2017 SaaS Capital survey showed that young companies actually have higher retention rates than more mature SaaS businesses

If the numerator of your quick ratio is growing that means your revenue is growing. It’s important to keep increasing revenue to counter any MRR (Monthly Recurring Revenue) that is lost to churn

Customer Segmentation analysis will help point out which are your most profitable segments

Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added

The median monthly revenue churn for large SaaS companies is 0.75%, translating into an annual revenue churn rate of 10%

How to Reduce Churn

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months