Successfully growing a SaaS business is not just about acquiring users and signing up new customers.
That's where SaaS growth metrics and statistics come into play. 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 important metrics when measuring growth for your SaaS business.
Quit making decisions in the dark! Instead, let's review some key SaaS growth metrics and statistics together.
"What metrics should I be tracking?" is a common question SaaS startups ask. So here are seven essential metrics to track and why you'd want to follow them.
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 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.
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 see 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)
Although this calculation looks simple, the following are some considerations regarding your MRR calculation:
Upgrades and downgrades
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 lost 12 customers at the end of May.
Your churn rate would be (12/140)* 100= 8.5%
After calculating your churn rate, it's time to make sure you're doing everything possible to reduce it.
The 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:
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 like:
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)
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).
Most companies' most significant expense is acquiring 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 to spend at most $3 to acquire customers.
One of the most crucial SaaS growth metrics for measuring client loyalty and happiness is the net promoter score (NPS).
When customers are surveyed about their satisfaction with a business, NPS is computed by classifying the responses into three groups: detractors, passives, and promoters.
Customers who give a score of 9 or 10 are considered promoters, while those who give a score of 7 or 8 are considered passive, and those who give a score of 0 to 6 are considered detractors.
The percentage of detractors is then subtracted from the percentage of promoters to determine the NPS.
The customer health score is an important SaaS growth statistic that aids businesses in assessing the general success and health of their client relationships.
Customer happiness, product usage, payment history, and involvement with support and marketing initiatives are some variables that determine it.
With the help of this metric, businesses can gain a thorough understanding of how their clients are doing and spot any emerging concerns before they get out of hand.
It is calculated with this formula:
Customer health score = total action value #1 + total action value #2 + total action value #3
A high customer health score indicates a solid and positive customer connection, whereas a low one suggests that the customer may be in danger of leaving or need more assistance to continue as a successful and happy client.
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:
➤ As Reportlinker states, the global cloud computing market size is expected to grow 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 (Source: G2 Track’s resource about Critical vs. Noncritical Software).
➤ According to McKinsey's insight into technology, media, and telecommunications, 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.
➤ As Exploding Topics mentioned, the SaaS market is anticipated to grow at its fastest rate between 2022 and 2023, reaching a value of $195.2 billion by year's end.
➤ According to Statista's research about top SaaS countries list, 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? TikTok has become a growing SaaS application for advertisers, as INC stated , with more than 30 million active users in the U.S. alone.
➤ According to Futurum Research, revenue for Salesforce's third quarter of 2023 was $7.84 billion, up 19% in (C/C) and 14% year over year.
➤ Shopify grew 225% in 20 months, from $52 billion to $185 billion. (Source: BMC's SaaS growth trends report.)
➤ 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.
The software as a service (SaaS) market is expected to grow globally between 2023 and 2025.
➤ The United States is expected to experience the most significant increase, from 92 billion euros to 191 billion euros in 2025. (Source: Statista's SaaS market forecast statistics).
➤ In 2023, the SaaS market in Japan is expected to reach a value of about ¥1.5 billion. (Source: Cisco Annual Report between 2018-2023)
Churn is a fundamental metric for SaaS companies and is the lifeblood of subscription-based businesses.
Unfortunately, it is a word that every SaaS company dreads hearing. 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%, as Sixteenventures explained in SaaS churn rate content. 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. (Source: Paddle's content about SaaS churn rate)
➤ In the same study, it is stated that 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%. (Source: Crazy about startups).
➤ MarketingCharts reports that channel sales have the highest churn rate of 17%, while field sales average from 11% to 8%.
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 of OpenView partners, 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. (Source: DevSquad)
➤ More than 50,000 SaaS vendors offer 30% off discounts or more to their customers. (Source:DevSquad)
➤ Thirty days is the most common free trial period.
➤ According to Spiceworks' article until 2025, the global SaaS market will grow by $99.99 billion.
SaaS statistics and growth metrics are crucial to the success of SaaS businesses. SaaS companies can obtain critical insights into their business performance and make data-driven decisions to spur growth by measuring key metrics like MRR, CAC, CLV, and NPS.
We've outlined the most critical metrics 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 to help it grow.
SaaS companies need growth metrics and statistics to monitor their performance, set goals, and make decisions that will result in long-term success and growth.
SaaS companies can better understand their customer base, income sources, and general financial health by keeping an eye on these data.
The growth rate shows a company's revenue increase over a specific period. One must have the prior year's and current year's revenue to calculate the growth rate.
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 average revenue increase for a startup that provides SaaS services is around 15% to 45%.
Explore these blog posts while you are here: