Grow Your SaaS Business: SaaS Growth Metrics and Statistics

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Successfully growing a SaaS business is not just about acquiring users and signing up new customers.

Growth can be evaluated in revenue and customer lifetime value, or it can be measured by the number of user accounts using your product.

You should keep track of many other important metrics when measuring growth for your SaaS business.

Many startups fail not because they don't have a viable business model but because they do not know how to grow their businesses.

Quit making decisions in the dark! Instead, let's review some of the key growth metrics and statistics crucial for SaaS startups together.

What Do SaaS Companies Do?

SaaS is an abbreviation for Software as a Service. So what do SaaS companies do?

SaaS companies provide software as a service, which means that it offers their application over the internet for other businesses and consumers.

Through the web browser, users can access, view, and use this data remotely.

In addition, the provider hosts the software and provides customer support for it.

This model provides software and data access to customers without requiring ongoing management of servers, storage, hardware, or other physical infrastructure. In addition, the application is often accessed through a web browser.

This gives the SaaS company much greater control over the experience than if it were only available in-house or locally installed on business computers.

What Is A Good Revenue Growth Rate For A SaaS Company?

The growth rate shows a company's revenue increase over a specific period. To calculate the growth rate, one must have the prior year's revenue and the current year's revenue.

Let me give you an example for quickly calculating the monthly growth rate:

(Current Month Revenue – Prior Month Revenue) / Prior Month Revenue * 100 = % Revenue Growth Rate

As a company develops and matures, its sales growth rate changes.

For example, the revenue increase for a startup that provides SaaS services is around 15% to 45%, on average.

What Is The Market Size Of SaaS?

The market size of SaaS is much bigger than that of other software.

This is the trend in which people are moving towards cloud-based applications and services.

Just like we do not need to install any software, people are moving towards using web-based applications because of their ease of use and accessibility from anywhere.

In 2021, the SaaS market is estimated to be worth approximately 145.5 billion U.S. Dollars.

The software as a service (SaaS) market is expected to grow globally between 2020 and 2025.

The United States is expected to experience the most significant increase, from 92 billion euros to 191 billion euros in 2025.

Essential SaaS Growth Metrics

"What metrics should I be tracking?" is a common question SaaS startups ask. So here are 5 essential metrics to track and why you'd want to follow them.

1. Annual Recurring Revenue (ARR)

ARRR! This exclamation can be heard from any corner of the startup world.

It's become the holy grail for many startups, including those that don't offer subscriptions or other recurring revenue models.

The most important metric for a subscription-based business is Annual Recurring Revenue (ARR).

ARR represents the total amount of recurring revenue the company brings in each year.

ARR = (Overall Subscription Cost Per Year + Recurring Revenue From Add-ons or Upgrades) - Revenue Lost from Cancellations.

We can also calculate the ARR by multiplying MRR by 12.

2. Monthly Recurring Revenue (MRR)

Recurring revenue is what makes a business sustainable.

It's a great metric to track because it shows whether you are getting more customers or if your existing ones are buying more products and services.

At the end of each month, you can look back at how much recurring revenue you have generated and compare that to how much you made in non-recurring sales that month.

The MRR = (average revenue per account)* (the total number of customers for that month)

Note:

Although this calculation looks simple, the following are some considerations regarding your MRR calculation:

  • Recurring revenue

  • Upgrades and downgrades

  • Customers churn

  • Discounts

3. Churn Rates

One of the frequent questions SaaS marketers ask is how to make their churn rates as low as possible.

Churn rate is a term that refers to the number of customers who cancel their subscriptions and stop using the vendor's services.

Churn rates are significant because they show how well a business retains its customers over time.

As with any business, the more you know about your customer, the better you'll be able to match their needs and expectations.

The Churn Rate: (Lost Customers / Total Customers at the beginning of the period) * 100

Let's say you had 140 customers in May, and you lost 12 customers at the end of May.

Your churn rate would be (12/140)*100= 8.5%

After you calculate your churn rate, it's time to make sure you're doing everything you can to reduce it.

Churn rate is one of the most critical metrics in determining how profitable a customer is for your business.

It also helps you determine whether or not specific customers are worth keeping around.

Here are some tips for you:

1.Don't disengage with customers

  1. Make your customers feel special
  2. Focus on loyalty-oriented customer service
  3. Ask for feedback

4. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is the net profit accumulated by a company from an average customer over the entire period of their relationship with the company.

CLV is often used to decide whether to retain, grow, or dispose of customers.

The higher an individual's CLV, the more likely they should be retained and offered additional value-added products and services.

CLV is a metric that measures the value of a customer based on multiple factors. Obvious factors include sales, but other factors may also be considered.

What kind of behavior does this customer exhibit?

Is it repeat business?

Word of mouth advertising?

Are they a stable or growing market segment for your company?

You can calculate CLV by:

Customer Lifetime Value (CLV) = ( the average order total average number of purchases average customer lifespan)

5. Cost of Acquiring a Customer (CAC)

SaaS companies must spend money to acquire a customer.

They might offer free trials, advertising, and other types of marketing; this is called the cost of acquiring a customer (CAC).

For most companies, their most significant expense is the cost to acquire a new customer.

An excellent way to reduce this expense is by channeling your resources and efforts into marketing channels with the highest return on ad spend (ROAS).

Three main factors impact CAC: Acquisition Cost, Customer Value, and Customer Lifetime Value.

CAC: Adding up the costs of marketing and sales activities--like advertising, sales salaries and commissions, and lead generation--that were associated with your revenue from a given customer and then dividing that amount by the number of customers you acquired.

The general rule of thumb is that you shouldn't spend more than $3 to acquire customers.

Must-Know SaaS Statistics

1. General SaaS Statistics

The SaaS market is growing at a breakneck speed. It's no secret that SaaS has been taking over, but here are a few statistics that will put this growth into perspective:

-In 2021, the company's biggest challenge was when it comes to managing SaaS applications are:

  • Controlling application sprawl with 49%

  • Discovering unmanaged applications 26%

  • Minimizing unmanaged spend 14%

according to Statista

-The global cloud computing market size is expected to grow from USD 445.3 billion in 2021 to USD 947.3 billion by 2026, at a Compound Annual Growth Rate (CAGR) of 16.3% during the forecast period.

-18% of purchased software products have a user satisfaction rating lower than four stars.

-Per McKinsey, just 28 percent of the software and Internet-services companies reached $100 million in revenue, and 3 percent reached $1 billion in their database. There is a direct correlation between the growth of companies and their revenue.

-For example, the same McKinsey research shows that companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent.

2. SaaS Market Statistics

-There were nearly 15.000 SaaS businesses in the U.S. alone, with 14 billion customers globally. The next market leader in the United Kingdom with 2.000 businesses and 2 billion customers.

-What about the leading SaaS companies? In 2021, V.K. Pay was the top e-commerce SaaS company with 580 million U.S. dollars in revenue.

-TikTok has become a growing SaaS application for advertisers, with more than 30 million active users in the U.S. alone.

-Salesforce grew to 252 billion dollars in revenue in September 2021 from 161 billion dollars in January 2020.

-Shopify grew 225% in 20 months, from $52 billion to $185 billion.

3. SaaS Churn Statistics

Churn is a fundamental metric for SaaS companies, and it's the lifeblood of subscription-based businesses.

Unfortunately, it is a word that every SaaS company dreads to hear. It's what happens when customers stop using your product.

A high churn rate can spell doom for a SaaS business, and it usually means you're leaving money on the table.

-The acceptable SaaS churn rate is 5-7%. You can measure this either by the number of customers or revenue.

-The average churn rate in SaaS is around 5%, and a "good" churn rate is considered 3% or less.

-Most low-growth companies about 42% have a higher churn than high-growth companies.

-For companies that make less than $10 million annually, the median annual SaaS churn rate is 20%.

-MarketingCharts reports that channel sales have the highest churn rate of 17%, while field sales average from 11% to 8%.

4. SaaS Pricing Statistics

The next time you're feeling discouraged about your software startup's growth, take a moment and look at the big picture.

Things may be challenging right now, but what's important is how you manage the challenges you face. To help with that, we've put together some useful SaaS pricing statistics.

-According to a research which the data collected from 1.000 SaaS leaders:

33% of the leaders are defined segments/personas, while 12% are still testing the market.

Their primary metric used is users (28%), usage or transactions ( 37%), and total employees or annual revenue (13%).

In addition, they use a value-based approach ( 40%), a competitor-based approach ( 26%), and best judgment approach (25%), and a cost-plus approach (9%).

-31% of SaaS companies say they offer very few discounts.

-More than 50,000 SaaS vendors offer 30% off discounts or more to their customers.

-Thirty days is the most common free trial period.

-Between 2021 and 2025, the global SaaS market will grow by $99.99 billion.

Metrics and statistics can be beneficial for understanding your SaaS business and how to grow it.

We've outlined the most important metrics that you need to track to get the best picture of your business.

Remember, companies are living, breathing things that must be nurtured and cared for if they are going to thrive.

With a clear picture of your business, you can make critical decisions that will help it grow.

FAQs:

1. Is Shopify a SaaS?

Yes. Shopify is a software company that offers eCommerce solutions primarily in online shopping carts and related services. It's based on the SaaS (software as a service) model, which means that it provides customers with access to its technology via an Internet connection rather than installing it on their servers.

2. What Are The Top 5 Saas Ecommerce Platforms?

If you run an online business, you probably have a good idea of the top eCommerce platforms. This list is based on our research on various platforms; the choice is up to you.

  1. Magento Commerce
  2. BigCommerce
  3. SalesForce
  4. Shopify Plus
  5. Volusion

3. Is Netflix a SaaS?

Yes. Netflix is an American media services provider headquartered in Los Gatos, California.

Founded in 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California, its primary business is its subscription-based streaming service, which offers online streaming of a library of films and television programs via a digital Internet connection.

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