Three uses for the SaaS Guidelines

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1. One of the key jobs of the CEO is to decide when to hit the accelerator pedal. The value of these two guidelines is that they help you understand when you have a SaaS business that is in good shape, where it makes sense to hit the accelerator pedal. Alternatively if your business doesn’t meet the guidelines, it is a good indicator that there is more tweaking needed to fix the business before you should expand.
2. Another way to use the two guidelines is for evaluating different lead sources. Different lead sources (e.g. Google AdWords, TV, Radio, etc.) have different costs associated with them. The guidelines help you understand if some of the more expensive lead generation options make financial sense. If they meet these guidelines, it makes sense to hit the accelerator on those sources (assuming you have the cash).Using the second guideline, and working backwards, we can tell that if we are getting paid $500 per month, we can afford to spend up to 12x that amount (i.e. $6,000) on acquiring the customer. If we’re spending less than that, you can afford to be more aggressive and spend more in marketing or sales.
3. There is another important way to use this type of guideline: segmentation. Early-stage companies are often testing their offering with several different uses/types of customers / pricing models / industry verticals. It is very useful to examine which segments show the quickest return or highest LTV to CAC in order to understand which will be the most profitable to pursue.

More SaaS + Software Stats

The very best SAAS companies keep monthly revenue churn at around 0.58%, that’s only about 7% revenue churn a year

Analysed 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

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?

In 2017, IBM generated 37.8 billion U.S. dollars in global IT services revenue, making it the largest IT services company in the world in terms of net sales

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

Software and online services are in a period of dizzying growth

High-growth companies generate 60% fewer sales opportunities than low-growth companies

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

51% of large (revenue >$2.5million) SaaS companies use field sales as their primary method of distribution

SaaS companies in the $7.5MM-$15MM range are among the fastest growers

More Growth Strategy Stats

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

Non-renewal rates are higher than gross dollar churn rates and higher for shorter duration contracts. Source: ForEntrepreneurs

How Often Should The Pricing Committee Be Meeting And Making Changes?

26% of SAAS companies with at least $15MM in GAAP revenue had a revenue growth rate + EBITDA margin of 40% or higher.

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

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely 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; this will become a major drag on growth

The venture-backed companies that were acquired most often had a 7 percent share of female execs, as opposed to 3 percent at unsuccessful (unacquired) firms

If your Net Revenue Churn is high (above 2% per month) it is an indicator that there is something wrong in your business

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