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.

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Growth rate accelerates in the expansion stage ($2.5M – $10M ARR)

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

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%)

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.

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

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

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

55% of SaaS companies rate Customer Retention as the key metric to measure

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

SaaS IPOs have more than doubled over the last 12 years

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How to Reduce Churn

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

After $10M in ARR, the median growth rate slows to just under 50%

Women in western countries use the internet 17 percent more than their male counterparts

Negative Churn and Expansion Revenue

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

In 2020, China is expected to generate 55 billion U.S. dollars in the global medical technology market.

56% treat “Existing Customer Renewals” as high priority

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

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