Software and online services are in a period of dizzying growth

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Year-old companies are turning down billion-dollar buyouts in the hopes of multibillions in a few months. But we have seen similar industry phases before, and they have often ended with growth and valuations fizzling out. The industry’s booms and busts make growth, an essential ingredient in value creation, difficult to understand. To date, little empirical work has been done on the importance of revenue growth for software and Internet-services companies or how to find new sources of growth when old ones run out.

More SaaS + Software Stats

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

It’s common for startups to grow rapidly, doubling or tripling in size year over year, until they hit $5M in ARR

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

Getting paid in advance is really smart idea if you can do it without impacting bookings, as it can provide the cash flow that you need to cover your cash problem

Our experiences with SaaS startups indicate that they usually start with a couple of lead generation programs such as Pay Per Click Google Ad-words, radio ads, etc

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

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

If the numerator of your quick ratio is growing that means your revenue is growing. It’s important to keep increasing revenue to counter any MRR (Monthly Recurring Revenue) that is lost to churn

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

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

More Growth Strategy Stats

Customer Segmentation analysis will help point out which are your most profitable segments

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

Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases

Improve Your Pricing Schedule And Turn More Profit

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

Is your SaaS business viable?

Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less

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.

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

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