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

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

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

Software and online services are in a period of dizzying growth

The very best SaaS businesses have a negative revenue churn rate and will have a Revenue Retention Rate of greater than 100%

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

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

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

Negative Churn and Expansion Revenue

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%)

If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years

More Growth Strategy Stats

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

Very few software companies grow beyond $1 billion in revenues

Growth matters more than margin or cost structure

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

The very best SaaS businesses have a negative revenue churn rate and will have a Revenue Retention Rate of greater than 100%

Publicly-traded SaaS companies have an average Revenue Per Employee of $200,000

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

Five critical enablers of growth in act one

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

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