Three uses for the SaaS Guidelines

From For Entrepreneurs.com
Quote in SaaS & Tech Growth Strategy
  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

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

Gross dollar churn among companies with an internet go-to-market strategy saw a meaningful increase, up from 8% in 2015

Increases in revenue growth rates drive twice as much market-capitalisation gain as margin improvements for companies with less than $4 billion in revenues

Median annual gross dollar churn was 8%, 7%, 6% and 8% in 2016, 2015, 2014 and 2013

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

Internet sales strategies are the only sales method to see a decline in CAC, dropping from $0.54 to $0.42 between 2014 and 2015

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

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

The fastest growing SaaS companies scale their organizations rapidly, growing their teams by an average of 56% each year

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

More SaaS & Tech Growth Strategy Stats

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

The average SaaS company spends just 6 hours determining their pricing strategy

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%”

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

At a 35% CAGR, it takes 10 years for a SaaS company to grow from $5M to $100M in ARR

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

Is your SaaS business viable?

Negative Churn and Expansion Revenue

In contrast to these, the median annual churn rate for smaller, private SaaS companies with less than $10M in revenue is 20%

In 2020, China is expected to generate 55 billion U.S. dollars in the global medical technology market.