Quote Info

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.

Tomasz Tonguz

More SaaS + Software Stats

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

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

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

Investment in marketing automation tools is expected to reach $25 billion by the year 2023

How Often Should The Pricing Committee Be Meeting And Making Changes?

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

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

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

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

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

More Growth Strategy Stats

When venture capitalists participate in seed rounds, the average round size is 3x larger

SAAS companies that are focused mainly on enterprise sales have higher levels of professional services

Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts

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

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.

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

Revenue per employee has been steadily increasing in SAAS companies. It serves as a great longitudinal measuring stick to understand the increasing or decreasing efficiency of the business

Improve Your Pricing Schedule And Turn More Profit

SAAS companies need to track the number of visitors, trials and closed deals; And also track the conversion rates, with the goal of improving those over time