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

A great way to understand any business model is to answer the following simple question:

Can I make more profit from my customers than it costs me to acquire them?

This is effectively a study of the unit economics of each customer. To answer the question, we need two metrics:

• LTV – the Lifetime Value of a typical customer
• CAC – the Cost to Acquire a typical Customer

(How to calculate LTV and CAC)

Entrepreneurs are usually overoptimistic about how much it costs to acquire a customer. This probably comes from a belief that customers will be so excited about what they have built, that they will beat a path to their doors to buy the product. The reality is often very different!

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SaaS + Software Stats

• Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less
• Investment in marketing automation tools is expected to reach $25 billion by the year 2023
• Only 8% of large companies use internet sales strategies. The proportion of companies relying on internet sales increases as company size decreases
• If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; which may have a dramatically negative effect on your company’s growth. Source: Mckinsey
• SaaS solutions have the highest security features with 95% security failures due to human error
• SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence
• Improve Your Pricing Schedule And Turn More Profit
• More than 1/2 of SAAS companies increased their spending on customer retention last year
• The statistic shows the worldwide IT spending on enterprise software from 2009 to 2020.

SaaS & Tech Growth Strategy Stats

• Companies with longer contracts (2+ years) reported the lowest annual unit churn
• The average company gets 16% of new ACV sales from up-sells and expansions, though companies with revenue between $10MM-$40MM are relying more heavily on up-sell and expansions
• 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
• In all SaaS businesses there will likely come a moment where they realize that not all customers are created equal
• SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer
• The largest SaaS companies (>$75million yearly revenue) attribute 2.5x as much new revenue to upselling than the smallest SaaS companies (<$1.25million): 28% versus 11%
• Increases in revenue growth rates drive twice as much market-capitalisation gain as margin improvements for companies with less than $4 billion in revenues
• Gross dollar churn among companies with an internet go-to-market strategy saw a meaningful increase, up from 8% in 2015
• In 2017, the world invested around 3.4 billion U.S. dollars in small hydropower technologies, down from 3.9 billion U.S. dollars in 2016.