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

From Mckinsey
Statistic in SaaS & Tech Growth Strategy

Software and online services are in a period of dizzying growth. Year-old companies are turning down billion-dollar buyouts in the hopes of multibillions in a few months. But we have seen similar industry phases before, and they have often ended with growth and valuations fizzling out. The industry’s booms and busts make growth, an essential ingredient in value creation, difficult to understand. To date, little empirical work has been done on the importance of revenue growth for software and Internet-services companies or how to find new sources of growth when old ones run out.

In our new research, we analyzed the life cycles of about 3,000 software and online-services companies from around the globe between 1980 and 2012. We also surveyed executives representing more than 70 companies and developed detailed case studies of companies that grew quickly and others whose growth stalled. The research produced three main findings.

Growth trumps all. Three pieces of evidence attest to the paramount importance of growth. First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent. Additionally, growth matters more than margin or cost structure. Increases in revenue growth rates drive twice as much market-capitalization gain as margin improvements for companies with less than $4 billion in revenues. Further, we observed no correlation between cost structure and growth rates.

Sustaining growth is really hard. Two facts emerged from the research. Companies have only a small probability of making it big. Just 28 percent of the software and Internet-services companies in our database reached $100 million in revenue, and 3 percent reached $1 billion. Of the approximately 3,000 companies we analyzed, only 17 achieved $4 billion in revenue as independent companies. Moreover, success is fleeting. Approximately 85 percent of supergrowers were unable to maintain their growth rates, and once lost, less than a quarter were able to recapture them. Those companies that did regain their historical growth rate had market capitalizations 53 percent lower than those that maintained supergrowth throughout.

There is a recipe for sustained growth. While every company’s circumstances are unique, the research found four principles that are essential to sustaining growth and from which every company can benefit. First, growth happens in phases: from start-up to billion-dollar giant, growth stories typically unfold as a prelude, act one, and act two. In act one, there are five critical enablers of growth: market, monetization model, rapid adoption, stealth, and incentives. A third principle is that the drivers for growth in act two are different. Successful strategies in act two include expanding the act-one offer to new geographies or channels, extending the act-one success to a new product market, or transforming the act-one offer into a platform. Finally, successful companies master the transition from one act to the next. Pitfalls include transitioning at the wrong time and selecting the wrong strategy for the next act.

Company leaders can use these insights to understand their growth trajectory and determine whether their current products and strategy are sufficient to reach their aspiration. If not, the research can help them determine the right time to make the transition to a second act that can sustain their growth and avoid some common pitfalls that have derailed several such transitions.

More SaaS + Software Stats

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

To generate a single dollar of new customer revenue, Field Sales strategies have an average Customer Acquisition Cost (CAC) of $1.14

The median annual contract value (ACV) was $25K, $21K, $21K, $20K in 2016, 2015, 2014 and 2013

Even if a software company is growing at 60% annually, its chances of becoming a multibillion-dollar giant are no better than 50/50

Getting paid in advance is really smart idea if you can do it without impacting bookings, as it can provide the cash flow that you need to cover your cash problem

Our experiences with SaaS startups indicate that they usually start with a couple of lead generation programs such as Pay Per Click Google Ad-words, radio ads, etc

The average company gets 16% of new ACV sales from up-sells and expansions, though companies with revenue between $10MM-$40MM are relying more heavily on up-sell and expansions

Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

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

More SaaS & Tech Growth Strategy Stats

SaaS solutions have the highest security features with 95% security failures due to human error

How Often Should The Pricing Committee Be Meeting And Making Changes?

Investment in marketing automation tools is expected to reach $25 billion by the year 2023

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

Cloud application services (SaaS) to reach $126 billions by the end of 2021

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

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

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

73% of organizations indicated nearly all their apps will be SaaS by 2021

After $10M in ARR, the median growth rate slows to just under 50%