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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.
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More SaaS + Software Stats

80% of venture capital investments take place in the enterprise

The metrics that matter for each sales funnel, vary from one company to the next depending on the steps involved in the funnel

The largest SaaS companies (>$75million yearly revenue) attribute 2.5x as much new revenue to upselling than the smallest SaaS companies (<$1.25million): 28% versus 11%

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

Publicly-traded SaaS companies have an average Revenue Per Employee of $200,000

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

The median average contract length is 1.3 years and the average billing term is seven months in advance in 2016. Comparable to 2015, with average contract length shortening from 1.5 to 1.3 years and average billing period increasing by one month from 2015 to 7 months

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

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

The fastest growing SaaS companies raise an average of $9.5M in Series A funding

More Growth Strategy Stats

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

In 2018, the U.S. imported aerospace products worth about 53.98 billion U.S. dollars.

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

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

The median SaaS business loses about 10% of its revenue to churn each year and that works out to about 0.83% revenue churn a month

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

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

When venture capitalists participate in seed rounds, the average round size is 3x larger

A 2017 SaaS Capital survey showed that young companies actually have higher retention rates than more mature SaaS businesses