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

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

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

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

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

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

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

Software and online services are in a period of dizzying growth

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

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

The median annual contract value (ACV) was $25K, $21K, $21K, $20K in 2016, 2015, 2014 and 2013

More Growth Strategy Stats

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

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

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth

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

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

The median monthly revenue churn for large SaaS companies is 0.75%, translating into an annual revenue churn rate of 10%

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

As with unit churn, companies with longer contracts (2+ years) tend to report lower annual dollar churn

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

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