Three uses for the SaaS Guidelines

SaaS + Software
Quote in SaaS & Tech Growth Strategy

Quote Info

  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.
For Entrepreneurs.com

More SaaS + Software Stats

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

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

55% of SaaS companies rate Customer Retention as the key metric to measure

Internet sales-driven companies have a much greater reliance on marketing, with 65% of the median company’s CAC budget devoted to marketing

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

SaaS, and other recurring revenue businesses are different because the revenue for the service comes over an extended period of time (the customer lifetime)

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

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

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

Companies that spend more on sales and marketing (as a % of revenue) generally grew at a faster rate than those that spent less

More SaaS & Tech Growth Strategy Stats

Unlike many other industries, if a software company grows at only 20%, it has a 92% chance of ceasing to exist within a few years

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

Revenue Renewal Rate= (MRR up for the renewal at beginning of month- MRR not renewed at the end of month)/ MRR up for renewal at beginning of month)

Companies with longer contracts (2+ years) reported the lowest annual unit churn

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

To generate a single dollar of new customer revenue, Field Sales strategies have an average Customer Acquisition Cost (CAC) of $1.14

The median annual unit churn for SAAS companies was 10% in 2016

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

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

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