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

Quote Info

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

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

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

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

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

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

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

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

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%)

The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year

The fastest growing SaaS companies raise an average of $9.5M in Series A funding

More Growth Strategy Stats

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

Growth rate accelerates in the expansion stage ($2.5M – $10M ARR)

The metrics that matter for each sales funnel, vary from one company to the next depending on the steps involved in the funnel

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

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

Our experiences with SaaS startups indicate that they usually start with a couple of lead generation programs such as Pay Per Click Google Ad-words, radio ads, etc

in 2016, women-led companies received $1.46 billion in investments from venture capitalists. Male-led companies, on the other hand, received $58.2 billion

Growing faster has twice as much impact on share price as improving margins

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

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