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Upsells key to growth and scale

As shown in the chart below, companies that have made it past the $40MM revenue mark use upsells to drive a much higher percentage of their new Average Contract Value (ACV) than smaller companies. In fact, companies in the $40-75MM revenue range attribute twice as much new revenue to upsells as the median company.

Of course, it’s dangerous to imply causation here. There are a number of reasons why we might see this effect in later-stage companies. One unexciting possibility is that their overall growth in new business is slowing down and it’s skewing these percentages in favor of upsells. Let’s look at this data through another lens and explore how upsells are related to growth.

RJMetrics

More SaaS + Software Stats

Smaller SAAS companies reported more frequent use of third-party providers as their primary application delivery method, while the largest companies were more likely to use self-managed servers

SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

The median cost for a SaaS company to acquire a dollar of new customer revenue is $1.18

SaaS IPOs have more than doubled over the last 12 years

Negative Churn and Expansion Revenue

To generate a single dollar of new customer revenue, Field Sales strategies have an average Customer Acquisition Cost (CAC) of $1.14

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

Between the SMB and Enterprise customer types, the top-quartile performers not only have net-revenue churn that is 14% to 23% percentage less than the average performers but also have net-revenue churn that is negative in an absolute sense

The median TTM revenue growth rate + adj. EBITDA margin for publicly traded SaaS companies was ~37%, implying that just under one half met or exceed “The Rule of 40%”

The best SAAS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8

More Growth Strategy Stats

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

Since churn is so important, wouldn’t it be useful if we could predict in advance which customers were most likely to churn?

SaaS businesses face significant losses in the early years (and often an associated cash flow problem)

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

Customer’s lifetime value (LTV)= average revenue per user (ARPU) / monthly churn rate

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

In 2017, the world invested around 3.4 billion U.S. dollars in small hydropower technologies, down from 3.9 billion U.S. dollars in 2016.

In 2018, the market size of information technology outsourcing amounted to 62 billion U.S. dollars.

For a SaaS business of almost any scale, the valuation impact of better retention is in the tens of millions over time

Customer Acquisition Cost (CAC) = sum of all sales & marketing expenses/ number of new customers added