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

56% treat “Existing Customer Renewals” as high priority

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

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

Negative Churn and Expansion Revenue

Software and online services are in a period of dizzying growth

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

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

Is your SaaS business viable?

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

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

More Growth Strategy Stats

Sony’s PlayStation brand had accumulated approximately 38.57 million fans on the social network

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

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

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

SAAS companies need to track the number of visitors, trials and closed deals; And also track the conversion rates, with the goal of improving those over time

The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18

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

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

The very best SaaS businesses have a negative revenue churn rate and will have a Revenue Retention Rate of greater than 100%