Blog Post
Jun 2, 2023
A Hint Of SaaS - June 2023
At the SaaS Founder Summit in February, we drilled down on the importance of pricing itself as a growth vector. Finding the right pricing tiers, strategies, and levers is a vital piece of building a successful software company.
Revenue retention (both Gross and Net) is another, closely-related, vital metric of SaaS companies' performance. Put simply, a company with 125% net revenue retention will grow by 25% next year on its current customer base alone. At scale, that makes growing by 100%+ considerably easier! Debt-focused fund SaaS Capital (note: Not us 😉) published its SaaS Retention benchmarks last month. The annual report provides clear, tangible guidance about this crucial metric for software companies.
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The full study is available here (PDF) but the charts displayed above highlight some of the study's key findings. Namely:
As ACVs rise, so too does net revenue retention. Benchmark levels for gross revenue retention, on the other hand, flatline around 92-93%.
For companies selling six-figure contracts, anything >120% NRR is best-in-class. While the same figure is still >100% for lower-ACV products, the bar to be "best-in-class" is considerably lower.
For companies with any degree of scale (>$1M ARR), net revenue retention exceeds 100%.
Multi-year contracts have revenue expansion built-in. The average company selling products on a month-to-month or annual basis, by contrast, has little automatic expansion.