SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

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This is because they have to invest heavily upfront to acquire the customer, but recover the profits from that investment over a long period of time. The faster the business decides to grow, the worse the losses become. Many investors/board members have a problem understanding this, and want to hit the brakes at precisely the moment when they should be hitting the accelerator.

In many SaaS businesses, this also translates into a cash flow problem, as they may only be able to get the customer to pay them month by month.

More SaaS + Software Stats

54% treat upselling and add-on sales as high priority

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

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

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

Negative Churn and Expansion Revenue

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

The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year

Because of the losses in the early days, which get bigger the more successful the company is at acquiring customers, it is much harder for management and investors to figure out whether a SaaS business is financially viable.

High-growth companies generate 60% fewer sales opportunities than low-growth companies

More Growth Strategy Stats

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

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

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

The average SaaS business generates 16% of its new Annual Contract Value (ACV) from upselling to existing customers

How to Reduce Churn

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

If the numerator of your quick ratio is growing that means your revenue is growing. It’s important to keep increasing revenue to counter any MRR (Monthly Recurring Revenue) that is lost to churn

It’s essential to have a point of view that puts a stake in the ground and breaks through the clutter.

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months

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