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

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In the first 3 years, these public SaaS companies spend between 80 to 120% of their revenue in sales and marketing (using venture dollars or other forms of capital to finance the business). By year 5, that ratio has fallen to about 50% where it remains for the life of the business.

Despite the divergent revenue ramps, the marketing and sales spend patterns for these companies resemble each other strongly and serve as good benchmarks for high-growth SaaS startups.

In case you’re curious, below is the “typical” revenue growth trajectory for these SaaS companies: $50M in year five, $100M in year ten.

More SaaS + Software Stats

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

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

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

To establish a revenue or lead-commitment based on your funnel metrics and revenue-growth goals, work backward from the gross revenue amount that marketing is responsible for generating (generally around 40%)

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

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

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

Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added

The statistic shows the worldwide IT spending on enterprise software from 2009 to 2020.

The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18

More Growth Strategy Stats

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

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

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

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

All types of investment have grown, year-on-year, with the biggest growth during the seed stage of financing

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

The median startup spends 92% of first year revenue on customer acquisition, taking 11-months to payback their Customer Acquisition Cost

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

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

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.