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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

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”

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

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

51% of large (revenue >$2.5million) SaaS companies use field sales as their primary method of distribution

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

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

The average SaaS business generates 16% of its new Annual Contract Value (ACV) from upselling to existing customers

SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer

Net-revenue churn improves with larger Average Contract Value (ACV), likely due to more structural churn among SMB customers and higher switching costs associated with larger contracts

Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013