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

Quote Info

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!

More SaaS & Tech Growth Strategy Stats

In 2018, the global tech spending is forecast to amount to 3,212 billion U.S. dollars.

SaaS organizations are now operating in over 100 countries

If you are charging $500 per month, you can afford to spend up to 12x that amount (i.e. $6,000) on acquiring a new customer

A 2017 SaaS Capital survey showed that young companies actually have higher retention rates than more mature SaaS businesses

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business; this will become a major drag on growth

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

The median TTM revenue growth rate + adj. EBITDA margin for publicly traded SaaS companies was ~37%, implying that just under one half met or exceed “The Rule of 40%”

Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month

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

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