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

SaaS + Software
Statistic in Growth Strategy

Statistic Info

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”ócompanies whose growth was greater than 60 percent when they reached $100 million in revenuesówere 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.

Mckinsey

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Negative Churn and Expansion Revenue

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

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Software and online services are in a period of dizzying growth

The fastest growing SaaS companies raise an average of $9.5M in Series A funding

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

55% of SaaS companies rate Customer Retention as the key metric to measure

SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

More Growth Strategy Stats

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

55% of SaaS companies rate Customer Retention as the key metric to measure

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

At Twitter, 10 percent of tech roles are staffed by women

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

They may forget what you said, but they will never forget how you made them feel.

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%

In 2019, spending on IT services is expected to amount to 1,016 billion U.S. dollars worldwide

Analyzed by contract value, field sales are primarily evident for companies with median deals over $25K. Inside sales strategies are most popular for companies with $1K-$25K median deal sizes

SaaS organizations are now operating in over 100 countries

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