SaaS Growth Rate Statistics and Averages
The common goal of all businesses, especially new ones, is to grow. Each metric and strategy tends to connect back to the goal of growing your customer base or your revenue.
That’s why your growth rate is one of if not the most vital metrics to track. It indicates financial health and overall marketing, sales, product, and service performance. If you want your business to survive, you must keep this metric in check.
What is the growth rate in SaaS?
Growth seems too vague to measure. After all, companies can grow in various ways – an increase in the number of customers or sales could count as growth too. Even the number of employees can be used to measure the size and growth of a company.
However, all these aspects (customers, sales, employees) connect to revenue. More customers or sales increase revenue. Hiring more employees is necessary to manage your growing customer base–and so, growing revenue. In short, growth of any kind is connected to revenue growth.
That’s why SaaS companies measure growth in terms of revenue–MRR or ARR to be specific. The calculation is as follows:
[ MRR at the end of period – MRR at the beginning ] / MRR at the beginning
In SaaS, the revenue growth rate accounts for new revenue sources as well as expansions. So, if your growth rate is increasing, you can deduce that more people are seeing, purchasing and enjoying your products. You can also ensure that your company will have the funds to continue running.
What metrics make up the growth rate?
But what if your growth rate isn’t increasing? What if it’s lower than your industry’s benchmark? Unfortunately, your growth rate by itself doesn’t tell you what you’re doing wrong and what you should change. To find these areas of improvement, you should use growth metrics.
In general, these growth metrics tell you about the revenue generated from and costs of acquiring customers.
1. Conversion Rate
One of the most basic ways of growing your business is to get more customers, or in other words, convert leads. So by measuring your conversion rate, you can see how effective your teams are at convincing prospects.
A reason behind your stagnating growth rate may be a low conversion rate. If this is the case, you’ve identified a starting point for improving growth!
To solve this issue, you can conduct a funnel analysis. This analysis shows the stages at which customers drop off before becoming customers. For instance, the screenshot below from HockeyStack’s dashboard shows that a big portion of users dropped off after interacting with the signup modal. This may be because the modal is hard to close, which can irritate users. To solve this issue, you can simply make the modal easier to navigate through and close.
2. Customer Acquisition Cost (CAC)
Similar to the conversion rate, your CAC deals with selling to leads. This metric is about the costs of converting customers, which include any money you’ve spent on sales and marketing. Dividing this total cost by the number of new customers gives you your CAC.
A high CAC means that you’re spending a lot on selling to prospects. When coupled with a low retention rate, a high CAC can damage your company’s financial health. So, it’s important to know the industry benchmarks for acquisition costs, compare your acquisition rate to the industry average, and know that customers with a high CAC need to be retained.
3. CLV:CAC Ratio
Your customer acquisition cost will reveal further insights when used together with your customer lifetime value. Since your CLV tells you about the revenue generated from a customer, dividing this number by your CAC gives you the profit you get for each dollar you spent on acquisition. For instance, if your CLV:CAC ratio is 4:1, for every dollar you spend on acquisition, you get four dollars from customers.
This ratio will help your business understand whether it’s targeting the right customers and if it’s seeing the benefits of marketing and sales efforts.
4. Retention Rate
Growth is largely about gaining more revenue. However, you don’t have to constantly acquire new customers to achieve this goal. This is because 65% of a company’s business will come from existing customers. The upsells, upgrades and cross-sells you make, as well as subscription renewals, help grow your company.
Not caring about retention leads you to acquire customers that are likely to switch to a competitor. Thus, if you disregard your existing customers and just focus on gaining new ones, it’s much harder for your company to grow.
To improve customer retention, you should learn about customer marketing. This marketing strategy increases loyalty, and creates advocates for your brand, who’ll refer your services to new prospects.
5. Monthly Active Users (MAU)
Acquiring inactive customers sets you up for failure. If users don’t find your product useful, don’t know how to use it, or can’t derive value from it, they will stop buying from you. They may even stop others from buying if they talk about their negative experience.
So, it’s important to keep track of the number of active users. Companies often measure monthly active users (MAU) as it gives them a more up-to-date insight.
If you find that you have lots of inactive users, don’t worry. You can always create a winback campaign that incentivizes them to re-engage with your brand. Or, if you want to prevent this problem from the start, can create an interesting onboarding sequence that’ll keep users hooked.
All SaaS are not created the same
You may not have seen some of your company’s growth metrics on this list, but that doesn’t mean you’re tracking the wrong numbers.
SaaS companies often track different metrics based on their growth models and goals. For example, if your company follows a product-led approach, you’ll track product usage and metrics like your activation rate or time to value. Similarly, if you follow a customer-led growth strategy, you’ll measure customer engagement via metrics like your customer health score or adoption rate.
These strategic differences result in different opinions when it comes to tracking growth. For this same reason, each company has a varying idea about “one metric that matters(OMTM)” some don’t find it necessary to assess their growth, some say that their OMTM is conversions, and others use revenue or MRR. Below, you can learn more about the opinions of 8 marketing experts about using an OMTM to measure growth.
As you can see, there’s no consensus on the ultimate metric, or whether an OMTM is indispensable for growth or not. And just as the right metrics and tracking methods change from company to company, the benchmarks also change.
What does the average SaaS growth rate look like?
Comparing your SaaS company’s growth to other industries would be like comparing apples to oranges. This is because the size of the industry, as well as the products and services offered, affect growth rates.
You can see the size of these differences from the data obtained by NYU Stern. The difference between the CAGR in revenue of the Air Transport and Entertainment industries, for instance, is almost 30%. You can also see that the SaaS industry has a higher CAGR in revenue compared to many others like healthcare information and technology or insurance.
Once you start comparing your growth to other SaaS companies, however, you’ll still be seeing a significant divergence between benchmarks. As seen in the graph below, the median growth rate of SaaS companies decreases as companies get older.
Data shows that companies surpassing the three-year mark have a much lower median growth rate than newer brands. This may be because they’re financially more stable and have to rely less on customer acquisition to keep running. So, if you’re new to the market, you’ll be aiming for much higher revenue growth, both to keep up with competition and stay on the market.
How can you streamline SaaS growth analytics?
You may see your benchmark as an unachievable goal. Your growth rate depends on countless factors, and connecting all the dots to improve your growth can look complex. But, there’s an easy fix.
You can significantly simplify SaaS growth analytics by using software like HockeyStack. These software have customizable dashboards that show the impact that each channel, touchpoint, and sale has on revenue growth. There are several ways in which these dashboards and visuals can be used to perform growth analytics.
Analyze revenue by channel
Often, each marketing and sales channel has a different audience. Some of these channels capture users with high LTVs, those that are highly interested in your products and are likely to make continuous purchases. Finding and capturing these customers is a big step toward improving your growth rate.
Find the types of content that bring the most MRR
Similar to channels, different content subjects attract different types of prospects. So, while working on your growth rate, knowing the information that your ideal customers are looking for is incredibly helpful. For instance, if the customers reading your business intelligence articles are generating more MRR, you can deduce that your ideal customer profile benefits from and demands features that’ll help them with business intelligence.
Look into individual customer journeys
You can also achieve growth by repeating your successful strategies. Look into the journey of leads you’ve converted. After which step did they subscribe? What could you have improved so that the conversion happened quicker? Which ads and campaigns did qualified leads interact with? These are all questions that can be answered with the journeys shown by HockeyStack. The answers you find will then help you convert more leads with fewer resources.
SaaS revenue growth rate is essential, but it’s not self-explanatory. Using growth metrics helps you make sense of your rate and reach your industry’s benchmark. Common growth metrics include your conversion rate, CAC, CLV to CAC ratio, retention rate and the number of active users. However, you’ll be using different metrics based on your company’s approach to growth.
By using analytics software, you can automate metric calculations, find areas of improvement, and make connections that’ll accelerate your growth.
To track your SaaS revenue growth rate, subtract your MRR at the beginning of the month from your MRR at the end, and divide by the MRR at the beginning. You can also view your growth rate on analytics softwares’ dashboards.
Growth analytics is about evaluating and using data to improve customer acquisition and retention, so businesses can optimize processes for maximum profitability.