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

The results of our analysis show that top-quartile-growth performers have much lower net-revenue churn than mean performers. The analysis also shows that 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 (Exhibit 1). In particular, between the SMB and the SMBs-and-enterprises customer types, top-quartile performers not only have net-revenue churn that is 14 to 23 percentage points less than mean performers but also have net-revenue churn that is negative in an absolute sense. Negative net-revenue churn means that these top-quartile performers would continue to grow even if they did not acquire any new customers (their ACV expansion in existing accounts is greater than any revenue churn from existing customers).

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SaaS + Software Stats

• Customer Segmentation analysis will help point out which are your most profitable segments
• It’s 4x cheaper to upsell existing customers than acquire new customers: costing just $0.28 to acquire an additional dollar of revenue
• 55% of SaaS companies rate Customer Retention as the key metric to measure
• The 2015 median revenue growth rate was 44%, while the median projected growth rate for 2016 is 48%
• 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.
• Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015
• Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month
• 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
• High-growth companies offer a return to shareholders 5 times greater than medium-growth companies

SaaS & Tech Growth Strategy Stats

• Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013
• The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18
• High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.
• Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month
• 73% of organizations indicated nearly all their apps will be SaaS by 2021
• The median SaaS business generates 16% of its new Annual Contract Value (ACV) from upselling to existing customers
• A 2017 SaaS Capital survey showed that young companies actually have higher retention rates than more mature SaaS businesses
• If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years
• Customer’s lifetime value (LTV)= average revenue per user (ARPU) / monthly churn rate