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

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

If a software company grows at 20% annually, it has a 92% chance of ceasing to exist within a few years

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

Is your SaaS business viable?

Customer Segmentation analysis will help point out which are your most profitable segments

SaaS IPOs have more than doubled over the last 12 years

56% treat “Existing Customer Renewals” as high priority

The ultimate solution to the churn problem is to get to Negative Churn

Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month

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

More Growth Strategy Stats

It’s common for startups to grow rapidly, doubling or tripling in size year over year, until they hit $5M in ARR

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

As of December 2018, there were total 105,000 employees in Lockheed Martin, as compared to 126,000 employees in 2015.

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

56% treat “Existing Customer Renewals” as high priority

In many SaaS businesses, sales reps play a key role in closing deals

Growing faster has twice as much impact on share price as improving margins

Account Churn Rate (ACR) = customers at beginning of month – customers at the end of month / customers at beginning of month

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

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