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

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SaaS, and other recurring revenue businesses are different because the revenue for the service comes over an extended period of time (the customer lifetime). If a customer is happy with the service, they will stick around for a long time, and the profit that can be made from that customer will increase considerably. On the other hand if a customer is unhappy, they will churn quickly, and the business will likely lose money on the investment that they made to acquire that customer. This creates a fundamentally different dynamic to a traditional software business: there are now two sales that have to be accomplished:

1. Acquiring the customer
2. Keeping the customer (to maximize the lifetime value).

Because of the importance of customer retention, we will see a lot of focus on metrics that help us understand retention and churn. But first let’s look at metrics that help you understand if your SaaS business is financially viable.

More SaaS + Software Stats

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

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

Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less

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

SaaS solutions have the highest security features with 95% security failures due to human error

Best-in-class SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month

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

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

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

After $10M in ARR, the median growth rate slows to just under 50%

More Growth Strategy Stats

Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases

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

A 1% increase in pricing strategy yields an average 11% increase in profit

SaaS organizations are now operating in over 100 countries

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

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

Achieving a SaaS Quick Ratio of 4 is a good benchmark for young, high-growth companies but the equation changes as those companies reach scale

High-growth companies generate 60% fewer sales opportunities than low-growth companies

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