Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

Quote Info

A great way to understand any business model is to answer the following simple question:

Can I make more profit from my customers than it costs me to acquire them?

This is effectively a study of the unit economics of each customer. To answer the question, we need two metrics:

• LTV – the Lifetime Value of a typical customer
• CAC – the Cost to Acquire a  typical Customer

(For more on how to calculate LTV and CAC, click here.)

Entrepreneurs are usually overoptimistic about how much it costs to acquire a customer. This probably comes from a belief that customers will be so excited about what they have built, that they will beat a path to their doors to buy the product. The reality is often very different!

More SaaS + Software Stats

It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue

Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing

Japanese company Hitachi accounted for three percent of the world’s market for diagnostic imaging in 2017.

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; which may have a dramatically negative effect on your company’s growth. Source: Mckinsey

80% of venture capital investments take place in the enterprise

More than two thirds of SAAS companies experienced annual churn rates of 5% or higher

High-growth companies generate 60% fewer sales opportunities than low-growth companies

The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%

If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years

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

More Growth Strategy Stats

It’s 9x cheaper to retain existing customers than acquire new customers: costing $0.13 to acquire any additional dollar of revenue

In 2017, the global adoption rate for biotech soybean amounted to 77 percent.

In 2020, China is expected to generate 55 billion U.S. dollars in the global medical technology market.

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts

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

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

Internet Sales strategies have a significantly lower CAC of just $0.42

Three uses for the SaaS Guidelines

The boom in the industry is creating more jobs for techies. Data reveals there were 627,000 unfilled positions in tech in April 2017

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