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

Even if a software company is growing at 60% annually, its chances of becoming a multibillion-dollar giant are no better than 50/50

SaaS companies in the $7.5MM-$15MM range are among the fastest growers

The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%

All types of investment have grown, year-on-year, with the biggest growth during the seed stage of financing

To establish a revenue or lead-commitment based on your funnel metrics and revenue-growth goals, work backward from the gross revenue amount that marketing is responsible for generating (generally around 40%)

26% of SAAS companies with at least $15MM in GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher.

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

At a 35% CAGR, it takes 10 years for a SaaS company to grow from $5M to $100M in ARR

When venture capitalists participate in seed rounds, the average round size is 3x larger

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

More Growth Strategy Stats

Women in western countries use the internet 17 percent more than their male counterparts

The fastest growing SAAS companies averaged $250k in MRR and were only losing around 3.2% of that revenue each month to churn

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

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

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

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

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

The boom in the industry is creating more jobs for techies. Data reveals there were 627,000 unfilled positions in tech in April 2017

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence