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Upsells key to growth and scale

As shown in the chart below, companies that have made it past the $40MM revenue mark use upsells to drive a much higher percentage of their new Average Contract Value (ACV) than smaller companies. In fact, companies in the $40-75MM revenue range attribute twice as much new revenue to upsells as the median company.

Of course, it’s dangerous to imply causation here. There are a number of reasons why we might see this effect in later-stage companies. One unexciting possibility is that their overall growth in new business is slowing down and it’s skewing these percentages in favor of upsells. Let’s look at this data through another lens and explore how upsells are related to growth.

RJMetrics

More SaaS + Software Stats

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

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 businesses face significant losses in the early years (and often an associated cash flow problem)

More than 1/2 of SAAS companies increased their spending on customer retention last year

Analyzed by contract value, field sales are primarily evident for companies with median deals over $25K. Inside sales strategies are most popular for companies with $1K-$25K median deal sizes

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

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

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

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

Software and online services are in a period of dizzying growth

More Growth Strategy Stats

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

SAAS companies with >$250K median ACV book nearly 25% of their contracts at 3 years or longer

Less than 20% of new revenue came from existing customers in the form of up-sell and expansion sales

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

It’s 9x cheaper to retain existing customers than acquire new customers: costing $0.13 to acquire any additional dollar of revenue

How to Reduce Churn

Even if a software company is growing at 60% annually, its chances of becoming a multibillion-dollar giant are no better than 50/50

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

For SaaS companies valued at over $1billion, the median amount of financing raised is $206million

The median startup spends 92% of first year revenue on customer acquisition, taking 11-months to payback their Customer Acquisition Cost