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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

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

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

When determining Sales Capacity, “it’s worth noting that some percentage of new sales hires won’t meet expectations, so that should be taken into consideration when setting hiring goals. Typically we have seen failure rates around 25-30% for field sales reps, but this varies by company. The failure rate is lower for inside sales reps. can be counted as half of a productive rep”

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

SaaS, and other recurring revenue businesses are different because the revenue for the service comes over an extended period of time (the customer lifetime)

The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18

If you are charging $500 per month, you can afford to spend up to 12x that amount (i.e. $6,000) on acquiring a new customer

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

While field sales remains the most popular way to sell for companies >$2.5MM revenue, companies with <$2.5MM revenue tended to use inside sales as their primary mode of distribution