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

Quote Info

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

(For more on how to calculate LTV and CAC, click here.)

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.

More SaaS + Software Stats

The top 50% of the fastest growing SaaS businesses generate much higher upsells than their competitors. The larger the business, the greater the impact of upselling

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

While field sales remains the most popular way to sell for companies >$2.5MM revenue, companies with <$2.5MM revenue tended to use inside sales as their primary mode of distribution

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

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

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

The average Quick Ratio of fastest growing SaaS companies (those with a CAGR of over 50%) is 3.9: generating $3.9 in revenue for every $1 lost to revenue churn

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

The median Customer Acquisition Cost (CAC) for upsells is just $0.28 per $1, less than a quarter of the $1.18 spent to acquire $1 of revenue from a new customer

More than two thirds of SAAS companies experienced annual churn rates of 5% or higher

More Growth Strategy Stats

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

54% treat upselling and add-on sales as high priority

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.

The fastest growing SAAS companies averaged $250k in MRR and were only losing around 3.2% of that revenue each month to churn

Between the SMB and Enterprise customer types, the top-quartile performers not only have net-revenue churn that is 14% to 23% percentage less than the average performers but also have net-revenue churn that is negative in an absolute sense

It’s essential to have a point of view that puts a stake in the ground and breaks through the clutter.

The very best SAAS business has a negative churn rate and will have a Dollar 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

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

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence