Benchmarking your SaaS business

Oracle Social Insight

Pacific Crest and David Skok have released a survey benchmarking SaaS metrics for early and growth stage companies.

The entire report is well worth reading.

Redpoint VC Tomasz Tunguz (@ttunguz) lists his 6 most important benchmarks and observations from the report.

1. Inside Sales Driven Companies Grow Fastest

Inside sales driven distribution companies grow about 40% faster than companies using field sales, web sales or channel, or about 37% revenue growth per year.

2. Price the Product Between $1k to $25k Annually to Optimize Growth

Companies with contract sizes of $1k to $25k grow the fastest, about 26% faster or 35% y/y. There are two reasons to support this pattern. First, purchases under $25k tend to require fewer approvals which decreases sales cycle. Second, these accounts can be closed by inside sales reps which are far less expensive than field sales. On the same sales investment, a startup may be able to hire three or four inside sales reps for each field sales rep.

3. The Cost of Customer Acquisition is About 11 Months’ of Revenue

The median startup spends about 92% of first year average contract value on the sale, implying an 11 month payback period on the CAC. An additional months’ revenue is required to upsell a customer and about the same is required to close a renewal.

4. Upsells are a Secret to Growing the Business Twice as Fast

The top 50% of growers generate more upsell business than their slower growing competitors. The difference in growth rates becomes more pronounced as the business scales into the $15M+ in annual revenue range where upselling companies grow more than twice as fast. In the early days of the business, net new account growth is a priority for most businesses but the growth rate data and CAC data indicate that upselling existing customers is an important and underemphasized key to growth.

5. Sales commission as % of ACV is ~9%

the typical ACV/compensation ratio was about 4:1 but in practice that number is closer to 10:1.

6. Median Monthly Revenue Churn is 0.75%

Churn rates vary dramatically by product category and customer. SMBs churn with greater frequency than enterprises and marketing software has an intrinsically greater churn rate than accounting software, so the median may be misleading for particular categories. This means each year, the median business loses about 10% of its revenue to churning customers.

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