Is your SaaS business viable?

SaaS + Software
Quote in SaaS & Tech Growth Strategy

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The first is a good way to figure out if you will be profitable in the long run, and the second is about measuring the time to profitability (which also greatly impacts capital efficiency).

The best SaaS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8. And many of the best SaaS businesses are able to recover their CAC in 5-7 months. However many healthy SaaS businesses don’t meet the guidelines in the early days, but can see how they can improve the business over time to get there.

The second guideline (Months to Recover CAC) is all about time to profitability and cash flow. Larger businesses, such as wireless carriers and credit card companies, can afford to have a longer time to recover CAC, as they have access to tons of cheap capital. Startups, on the other hand, typically find that capital is expensive in the early days. However even if capital is cheap, it turns out that Months to recover CAC is a very good predictor of how well a SaaS business will perform. Take a look at the graph below, which comes from the same model used earlier. It shows how the profitability is anemic if the time to recover CAC extends beyond 12 months.

For Entrepreneurs.com

More SaaS + Software Stats

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

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

Growth rate accelerates in the expansion stage ($2.5M – $10M ARR)

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

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

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

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

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

The statistic shows the worldwide IT spending on enterprise software from 2009 to 2020.

More SaaS & Tech Growth Strategy Stats

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

Unlike many other industries, if a software company grows at only 20%, it has a 92% chance of ceasing to exist within a few years

Increases in revenue growth rates drive twice as much market-capitalisation gain as margin improvements for companies with less than $4 billion in revenues

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

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

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

SAAS companies that are focused mainly on enterprise sales have higher levels of professional services

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

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

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