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

Statistic Info

Executive Summary Summary of the top findings from the latest SaaS Metrics Survey. Customer retention cost, customer health, and customer lifetime value are the new frontier in SaaS metrics The SaaS industry continues to be a challenged by high churn rates Spending on customer retention is growing SaaS companies continue to invest in tracking more metrics on their existing customers. The top new metrics companies plan to track in 2016 are customer retention cost, customer health, and customer lifetime value. More than two-thirds of the surveyed SaaS companies experienced annual churn rates of 5% or higher. Additionally, almost the same number saw an increase or no change in churn since the previous year. More than half of the companies surveyed increased their spending on customer retention last year. Spending on staffing increased at a faster clip compared to spending on technology or programs, suggesting that companies are still more focused on building out their teams vs. putting in place the infrastructure to scale customer retention operations. Upsell and expansion sales are a missed opportunity for SaaS vendors For the large majority of SaaS companies surveyed (81%), only 20% or less of new revenue came from existing customers in the form of upsell and expansion sales. SaaS company growth rates are strongly influenced by customer retention and upsell For the third year in a row, the survey indicates that the fastest growing SaaS companies have a significantly better record on churn and upsell, underscoring the critical role of managing revenue from existing customers in the SaaS business model.

More SaaS + Software Stats

High-growth companies offer a return to shareholders 5 times greater than medium-growth companies

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts. Source: ForEntrepreneurs

The average company booking professional services revenue on new deals is equivalent to 16% of the first year subscription value. Professional services margins are approximately 22%

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

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

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

Less than 20% of new revenue came from existing customers in the form of up-sell and expansion sales

In contrast to these, the median annual churn rate for smaller, private SaaS companies with less than $10M in revenue is 20%

Between the SMB and Enterprise customer types, the top-quartile performers not only have net-revenue churn that is 14% to 23% percentage less than the average performers but also have net-revenue churn that is negative in an absolute sense

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth

More Growth Strategy Stats

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

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

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%

The median SaaS business loses about 10% of its revenue to churn each year and that works out to about 0.83% revenue churn a month

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months

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

86% of SaaS businesses treat “New Customer Acquisition” as their highest growth priority, both in terms of executive support and funding available

How to Reduce Churn

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

In 2017, Foxconn Technology Group achieved a net income of 135.37 billion New Taiwanese dollars, the equivalent to approximately 4.55 billion U.S. dollars.