Quote Info

Yes, you might have “negative churn” or “expansion revenue” where you lose some customers but the ones that stay pay you more over the course of the year.

That’s awesome! Expansion revenue is the best.

Unfortunately, in my experience, SaaS providers with high churn rates often don’t know how to effectively up-sell, cross-sell, or even down-sell so their churn rate is rarely offset by expansion revenue.

And the cost of acquiring more customers – especially when accurately figuring in all sales, marketing, on-boarding, and support costs – will frequently do more to offset what expansion revenue they have than the other way around.

As well, their pricing models are usually such that they don’t effectively move customers to higher pricing tiers and, in fact, often have non-value differentiators (like storage) separating pricing tiers so that customers game the system to avoid paying more (a major churn threat, by the way).

That said, assuming you’ve got up-sells and cross-sells that work and you have a pricing model that encourages customers to use more so they pay more to drive expansion revenue, how much better would it be if you could expand revenue over a larger customer-base by keeping more customers?

Right… so even when arguing for expansion revenue, I’m also arguing for lower churn.

sixteenventures.com

More SaaS + Software Stats

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

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

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%

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

The 2015 median revenue growth rate was 44%, while the median projected growth rate for 2016 is 48%

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

The median startup spends 92% of first year revenue on customer acquisition, taking 11-months to payback their Customer Acquisition Cost

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business

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

Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

More Growth Strategy Stats

Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing

It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue

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

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

The average SaaS company spends just 6 hours determining their pricing strategy

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

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

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

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

How Often Should The Pricing Committee Be Meeting And Making Changes?