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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

The largest SaaS companies (>$75million yearly revenue) attribute 2.5x as much new revenue to upselling than the smallest SaaS companies (<$1.25million): 28% versus 11%

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

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

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

The metrics that matter for each sales funnel, vary from one company to the next depending on the steps involved in the funnel

Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015

Net-revenue churn improves with larger Average Contract Value (ACV), likely due to more structural churn among SMB customers and higher switching costs associated with larger contracts

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

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

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

More Growth Strategy Stats

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

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

Less than 20% of new revenue came from existing customers in the form of up-sell and expansion sales

The largest SaaS companies (>$75million yearly revenue) attribute 2.5x as much new revenue to upselling than the smallest SaaS companies (<$1.25million): 28% versus 11%

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

SaaS companies in the $7.5MM-$15MM range are among the fastest growers

The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year

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

Companies with longer contracts (2+ years) reported the lowest annual unit churn

The very best SaaS businesses have a negative revenue churn rate and will have a Revenue Retention Rate of greater than 100%