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

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

SaaS IPOs have more than doubled over the last 12 years

Three uses for the SaaS Guidelines

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

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

56% treat “Existing Customer Renewals” as high priority

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

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

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

The median startup spends 92% of first year revenue on customer acquisition, taking 11-months to payback their Customer Acquisition Cost

More Growth Strategy Stats

In contrast to these, the median annual churn rate for smaller, private SaaS companies with less than $10M in revenue is 20%

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

In 2018, the U.S. imported aerospace products worth about 53.98 billion U.S. dollars.

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

Unlike many other industries, if a software company grows at only 20%, it has a 92% chance of ceasing to exist within a few years

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

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?