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

Customer Segmentation analysis will help point out which are your most profitable segments

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

If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years

SAAS companies that are focused mainly on enterprise sales have higher levels of professional services

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

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

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

To generate a single dollar of new customer revenue, Field Sales strategies have an average Customer Acquisition Cost (CAC) of $1.14

80% of venture capital investments take place in the enterprise

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

More Growth Strategy Stats

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

At Twitter, 10 percent of tech roles are staffed by women

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

In 2017, IBM generated 37.8 billion U.S. dollars in global IT services revenue, making it the largest IT services company in the world in terms of net sales

In 2020, China is expected to generate 55 billion U.S. dollars in the global medical technology market.

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

56% treat “Existing Customer Renewals” as high priority

In 2019, spending on IT services is expected to amount to 1,016 billion U.S. dollars worldwide

In 2017, Foxconn Technology Group achieved revenue of 158.15 billion U.S. dollars.

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