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

Analyzed by contract value, field sales are primarily evident for companies with median deals over $25K. Inside sales strategies are most popular for companies with $1K-$25K median deal sizes

Japanese company Hitachi accounted for three percent of the world’s market for diagnostic imaging in 2017.

Companies with longer contracts (2+ years) reported the lowest annual unit churn

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 average company booking professional services revenue on new deals is equivalent to 16% of the first year subscription value. Professional services margins are approximately 22%

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

The 2015 median revenue growth rate was 44%, while the median projected growth rate for 2016 is 48%

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

26% of SAAS companies with at least $15MM in 2015 GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher

The median Customer Acquisition Cost (CAC) for upsells is just $0.28 per $1, less than a quarter of the $1.18 spent to acquire $1 of revenue from a new customer

More Growth Strategy Stats

Achieving a SaaS Quick Ratio of 4 is a good benchmark for young, high-growth companies but the equation changes as those companies reach scale

High-growth companies are 8X more likely to reach $1 billion in revenues than those growing less than 20%.

SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer

As of December 2018, there were total 105,000 employees in Lockheed Martin, as compared to 126,000 employees in 2015.

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

The 2015 median revenue growth rate was 44%, while the median projected growth rate for 2016 is 48%

For SaaS companies valued at over $1billion, the median amount of financing raised is $206million

The venture-backed companies that were acquired most often had a 7 percent share of female execs, as opposed to 3 percent at unsuccessful (unacquired) firms

In all SaaS businesses there will likely come a moment where they realize that not all customers are created equal

The median annual unit churn for SAAS companies was 10% in 2016