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The first is a good way to figure out if you will be profitable in the long run, and the second is about measuring the time to profitability (which also greatly impacts capital efficiency).

The best SaaS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8. And many of the best SaaS businesses are able to recover their CAC in 5-7 months. However many healthy SaaS businesses don’t meet the guidelines in the early days, but can see how they can improve the business over time to get there.

The second guideline (Months to Recover CAC) is all about time to profitability and cash flow. Larger businesses, such as wireless carriers and credit card companies, can afford to have a longer time to recover CAC, as they have access to tons of cheap capital. Startups, on the other hand, typically find that capital is expensive in the early days. However even if capital is cheap, it turns out that Months to recover CAC is a very good predictor of how well a SaaS business will perform. Take a look at the graph below, which comes from the same model used earlier. It shows how the profitability is anemic if the time to recover CAC extends beyond 12 months.

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More SaaS + Software Stats

Achieving a SaaS Quick Ratio of 4 is a good benchmark for young, high-growth companies but the equation changes as those companies reach scale

55% of SaaS companies rate Customer Retention as the key metric to measure

SAAS companies invest between 80% and 120% of their revenue in sales and marketing in the first 5 years of their existence

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

Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month

The very best SAAS business has a negative churn rate and will have a Dollar Retention Rate of greater than 100%

The average company booking professional services revenue on new deals is equivalent to 16% of the first year subscription value. Professional services margins are approximately 22%

If you are charging $500 per month, you can afford to spend up to 12x that amount (i.e. $6,000) on acquiring a new customer

Gross dollar churn among companies with an internet go-to-market strategy saw a meaningful increase, up from 8% in 2015

Growing faster has twice as much impact on share price as improving margins

More Growth Strategy Stats

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

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

High-growth companies offer a return to shareholders 5 times greater than medium-growth companies

Revenue Churn Rate = (RCR) (MRR at beginning of month – MRR at end of month) – MRR in upgrades during month / MRR at beginning of month

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

It’s 9x cheaper to retain existing customers than acquire new customers: costing $0.13 to acquire any additional dollar of revenue

As companies scale their growth engines, a slightly-above-average churn rate becomes harder and harder to offset with net new revenue growth, especially when the goal is to outpace it by 4x

The average company booking professional services revenue on new deals is equivalent to 16% of the first year subscription value. Professional services margins are approximately 22%

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All types of investment have grown, year-on-year, with the biggest growth during the seed stage of financing