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

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

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

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

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

Customer’s lifetime value (LTV)= average revenue per user (ARPU) / monthly churn rate

Moving from $1.5 million with an eye towards $10 million in ARR is a tough a task and will take an excellent VP of sales to get you there

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

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

SaaS, and other recurring revenue businesses are different because the revenue for the service comes over an extended period of time (the customer lifetime)

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

More Growth Strategy Stats

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

How to Reduce Churn

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

The best SaaS companies achieve 5-7% annual revenue churn – equivalent to a loss of $1 out of every $200 each month

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

A 1% increase in pricing strategy yields an average 11% increase in profit

In 2018, the global tech spending is forecast to amount to 3,212 billion U.S. dollars.

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

51% of large (revenue >$2.5million) SaaS companies use field sales as their primary method of distribution

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