In the report, we analyze gross and net retention across other key SaaS metrics like growth, ACV, funding, channel sales, and billing frequency
About Techcelerate Ventures
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www.saas-capital.com
RETENTION
PAGE 1
In Q1 of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 8th annual survey and it continues
to grow year-over-year with over 1,100 private B2B SaaS companies responding, making it the largest survey of its kind. Below are our findings
on retention. Future research briefs will cover growth rate, channel partnerships, departmental spending and a new area of questioning this year:
employee stock option plans.
2019 B2B SAAS RETENTION BENCHMARKS
Because of its compounding effect on growth, revenue retention is now well established as the most important metric for
ensuring medium- to long-term business health. New sale bookings versus revenue retention is the SaaS version of “offense
wins games, defense wins championships.” Because of its importance, we publish a lot of research on retention rates,
and below is our most recent survey data cross-referenced against other important figures like growth rate, funding and
spending.
First, definitions. We asked companies to report their net and gross annual revenue retention data. Customer account
retention may be a useful metric for you to track, but our focus in the survey, and generally the retention metric we think
the most important, is based on dollars of revenue. We define net retention as:
(Monthly Recurring Revenue in “June of 2019” only from customers who were customers in “June 2018”)
÷
(Total MRR in June 2018)
This number can be anything from 0% to well above 100%, as it includes up-sells, new product cross-sells and price
increases. Annual gross retention is the same formula, excluding the upsells, cross-sells and price increases. (For easy
calculation, set each customer’s 2019 MRR to be less than or equal to their 2018 MRR.) For this reason, gross retention
cannot exceed 100%.
Retention by AnnuAl ContRACt VAlue
The chart to the right shows median net and gross revenue
retention across a range of annual contract values (ACVs).
For retention, benchmarking by ACV is the best starting
point. More than by company age, revenue level, or
industry, companies that share a similar selling price have
the most in common. They will be organized similarly, go
to market similarly, and support customers similarly. The
opposite is true of two companies selling a $19.99/month
product versus a $250,000/year product.
Two obvious trends emerge in the data below. The first is
that higher gross retention is directly correlated with higher
ACVs. Our annual survey data has consistently shown
this relationship over the years. It is an intuitive relationship in that higher-priced solutions more often involve a longer
sales cycle, in-depth scoping and implementation, and dedicated support and account management. High ACV products
also frequently require multi-year agreements. Lower ACV software is more commonly self-serve with minimal training,
RESEARCH BRIEF 19: RETENTION
80
85
90
95
100
105
< $6,000
$6k -
$12k
$12k -
$25k
$25k -
$50k
$50k -
$100k
$100k -
$250k
>$250k
Median Annual Reten�on PercentageAnnual Contract Value
Net Revenue Reten�on
Gross Revenue Reten�on
SaaS Capital
www.saas-capital.com
RETENTION
PAGE 2
onboarding, or support. Many lower ACV products are
also targeted toward smaller-end customers that have a
higher natural churn rate because they go out of business
more frequently. This concept of a gross retention “ceiling”
due to market or customer characteristics comes up
several more times below in this research brief and is
something we plan to study further.
The second trend is that, aside from the very small ACV
segment, net retention is fairly consistent across all ACVs.
This is interesting because despite having lower gross
retention, lower ACV product companies are apparently
finding more ways than their higher ACV counterparts to
upsell and cross-sell into their customer base. The lower
gross but higher net retention companies are on equal
footing in the ‘compounding effect of churn’ formula,
however, they likely spend more sales and marketing
recourses to achieve the same outcome.
These trends are consistent with previous years’ surveys:
the median net revenue retention across all companies is
100%, and gross retention remained at about 90%.
Retention And GRowth RAte
The chart below shows the relationship between median
net and gross revenue retention and growth rate for
companies with at least $1 million in ARR (we excluded
the small companies because of their highly erratic
growth rates). Higher growth and higher retention are
directly correlated and create a positive feedback loop
due to the compounding nature of retention. This relates
to the “leaky bucket” phenomenon. The higher your
retention, the easier it is to grow that much faster because
you don’t have to first refill the bucket before adding to it,
and that scenario repeats and expands on itself year after
year. The opposite is also true.
Companies growing between 10% and 50% all share net
retention rates near 100%. Net retention of 100% appears
to be table stakes for a successful, growing company but
retention alone doesn’t explain the difference between a
10% growth company and a 50% growth company.
For a company to grow faster than 50%, however,
retention above 100% is required. Strong new bookings
are not enough to propel a company into high-growth
status, it must also effectively and increasingly upsell into
the customer base or have a product that scales up with
each customer.
Gross retention does not share as strong of a relationship
with growth rates as net retention. The median gross
retention rate for slow or no growth businesses in the
survey was 89%, while it was 91% for all other businesses
growing at least 10%. So, similar to net retention, gross
retention needs to be at a stable and sufficient level, but
above that, it is not the main determinant of growth.
Retention And ChAnnel SAleS
Channel sales has been an area of increasing interest
for the SaaS model over the last few years, and we are
frequently asked about the impact of a channel sales
strategy on retention. First, there is no difference in net or
gross retention between companies that have a channel
program and those that do not. Both groups report 100
net and 90 gross retention.
However, both net and gross retention are lower for
companies who receive the majority of total revenue
through a channel partner versus those that sell mostly
directly: 101 net and 87 gross for the latter and 97 net
and 84 for the former. That said, while the number of
companies that run a channel program versus those that
80
85
90
95
100
105
Median Annual Reten�on PercentageAnnual Revenue Growth Rate
Net Reten�on
Gross Reten�on
SaaS Capital
80.0
85.0
90.0
95.0
100.0
105.0
Value-added
reseller
So�ware
company
Consul�ng firm Complementary
non-so�ware
company
Annual Reten�on PercentageChannel Partner Type
Net Reten�on
SaaS Capital
www.saas-capital.com
RETENTION
PAGE 3
do not is about 50/50, only about 10% of companies that
have a channel program receive a majority of revenue
from it.
Selling strategy does not appear to impact retention.
There is no clear relationship between retention
and whether the channel partner provides a simple
introduction between the customer and SaaS company,
or the customer is jointly sold by the partner and SaaS
company, or if the sale is 100% managed by the partner.
It also doesn’t appear to matter with whom you partner
with, except for upsell potential through a non-software
provider. In the chart above, the biggest difference among
the different potential partner types is lower net retention
when partnering with complementary non-software
companies.
Retention foR hoRizontAl VS. VeRtiCAl SolutionS
Two interesting points emerge when we segment by
whether a company sells a vertical focused product
(dental office management software) versus a horizontal
product (applicant tracking). Gross retention for
horizontal-focused companies is weaker, by 5 percent,
than that of their vertical peers. Interestingly, however, net
retention is close to equal between vertical and horizontal
companies, 99 versus 101.
Retention in VC-bACked VS. bootStRApped CompAnieS
How do bootstrapped companies compare to venture
capital-backed companies? Both net and gross retention
are 4 percentage points higher for venture-backed
companies.
Peeling back the data another layer, a much higher
percentage of VC-backed companies have a customer
success (CS) lead reporting to the CEO earlier in their
life than their bootstrapped peers. At about year 7 or 8,
bootstrapped companies have caught up, with about 61%
of both groups having a VP of CS at that point.
VC-backed companies also outspend bootstrapped
companies on customer success by about 20% in their
early years, but again, by about year 7 or 8, both groups
are spending about the same: 10% of revenue.
Despite eventually reaching parity with the VC-backed
companies on the investment in CS, bootstrapped
companies don’t ever close the churn gap with their VC-
backed counterparts. Instead, bootstrapped companies
in their early years have retention about 4 percent lower
than their VC-backed peers, and it remains about that
much lower through time.
ConCluSionS And tAkeAwAyS
•
Across all SaaS companies, net retention is 100% and
gross retention is 90%.
•
Gross retention is higher for higher-ACV products.
•
Gross churn is not correlated with growth rate, but
net churn is.
•
Companies selling a vertical product have higher
gross retention (89%) than companies selling a
horizontal product (83%). Net retention is about the
same for the two groups (99%).
•
Companies that receive more than 50% of total
revenue through a channel partnership have lower
retention than their peers.
•
Venture-backed companies have higher gross and
net retention than bootstrapped companies, by 4
percentage points.
•
Something not discussed above, but that we are
asked frequently, is whether payment frequency
(annual up-front versus monthly) impacts retention.
The data show virtually no difference in retention
rates between companies that receive customer
payments primarily on a monthly basis versus those
that predominately take annual up-front payments
(100% net and 90% gross for both).
“The biggest difference among the
different potential partner types is
lower net retention when partnering
with complementary non-software
companies. ”
www.saas-capital.com
RETENTION
PAGE 4
ABOUT SAAS CAPITAL
SaaS Capital is the leading provider of growth debt specifically designed for SaaS
companies. Focusing exclusively on the SaaS business model, SaaS Capital delivers
faster decisions, more capital, and longer commitments. SaaS businesses have used
SaaS Capital instead of equity to finance growth and create hundreds of millions of
dollars in enterprise value without sacrificing significant ownership or control. SaaS
Capital has offices in Cincinnati and Seattle.
Visit www.saas-capital.com to learn more.
1311 VINE STREET | CINCINNATI, OH, 45202
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
IWWW.SAAS-CAPITAL.COM
TODD GARDNER | FOUNDER AND MANAGING DIRECTOR | TGARDNER@SAAS-CAPITAL.COM | 513-368-4814
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529
RETENTION
PAGE 1
In Q1 of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 8th annual survey and it continues
to grow year-over-year with over 1,100 private B2B SaaS companies responding, making it the largest survey of its kind. Below are our findings
on retention. Future research briefs will cover growth rate, channel partnerships, departmental spending and a new area of questioning this year:
employee stock option plans.
2019 B2B SAAS RETENTION BENCHMARKS
Because of its compounding effect on growth, revenue retention is now well established as the most important metric for
ensuring medium- to long-term business health. New sale bookings versus revenue retention is the SaaS version of “offense
wins games, defense wins championships.” Because of its importance, we publish a lot of research on retention rates,
and below is our most recent survey data cross-referenced against other important figures like growth rate, funding and
spending.
First, definitions. We asked companies to report their net and gross annual revenue retention data. Customer account
retention may be a useful metric for you to track, but our focus in the survey, and generally the retention metric we think
the most important, is based on dollars of revenue. We define net retention as:
(Monthly Recurring Revenue in “June of 2019” only from customers who were customers in “June 2018”)
÷
(Total MRR in June 2018)
This number can be anything from 0% to well above 100%, as it includes up-sells, new product cross-sells and price
increases. Annual gross retention is the same formula, excluding the upsells, cross-sells and price increases. (For easy
calculation, set each customer’s 2019 MRR to be less than or equal to their 2018 MRR.) For this reason, gross retention
cannot exceed 100%.
Retention by AnnuAl ContRACt VAlue
The chart to the right shows median net and gross revenue
retention across a range of annual contract values (ACVs).
For retention, benchmarking by ACV is the best starting
point. More than by company age, revenue level, or
industry, companies that share a similar selling price have
the most in common. They will be organized similarly, go
to market similarly, and support customers similarly. The
opposite is true of two companies selling a $19.99/month
product versus a $250,000/year product.
Two obvious trends emerge in the data below. The first is
that higher gross retention is directly correlated with higher
ACVs. Our annual survey data has consistently shown
this relationship over the years. It is an intuitive relationship in that higher-priced solutions more often involve a longer
sales cycle, in-depth scoping and implementation, and dedicated support and account management. High ACV products
also frequently require multi-year agreements. Lower ACV software is more commonly self-serve with minimal training,
RESEARCH BRIEF 19: RETENTION
80
85
90
95
100
105
< $6,000
$6k -
$12k
$12k -
$25k
$25k -
$50k
$50k -
$100k
$100k -
$250k
>$250k
Median Annual Reten�on PercentageAnnual Contract Value
Net Revenue Reten�on
Gross Revenue Reten�on
SaaS Capital
www.saas-capital.com
RETENTION
PAGE 2
onboarding, or support. Many lower ACV products are
also targeted toward smaller-end customers that have a
higher natural churn rate because they go out of business
more frequently. This concept of a gross retention “ceiling”
due to market or customer characteristics comes up
several more times below in this research brief and is
something we plan to study further.
The second trend is that, aside from the very small ACV
segment, net retention is fairly consistent across all ACVs.
This is interesting because despite having lower gross
retention, lower ACV product companies are apparently
finding more ways than their higher ACV counterparts to
upsell and cross-sell into their customer base. The lower
gross but higher net retention companies are on equal
footing in the ‘compounding effect of churn’ formula,
however, they likely spend more sales and marketing
recourses to achieve the same outcome.
These trends are consistent with previous years’ surveys:
the median net revenue retention across all companies is
100%, and gross retention remained at about 90%.
Retention And GRowth RAte
The chart below shows the relationship between median
net and gross revenue retention and growth rate for
companies with at least $1 million in ARR (we excluded
the small companies because of their highly erratic
growth rates). Higher growth and higher retention are
directly correlated and create a positive feedback loop
due to the compounding nature of retention. This relates
to the “leaky bucket” phenomenon. The higher your
retention, the easier it is to grow that much faster because
you don’t have to first refill the bucket before adding to it,
and that scenario repeats and expands on itself year after
year. The opposite is also true.
Companies growing between 10% and 50% all share net
retention rates near 100%. Net retention of 100% appears
to be table stakes for a successful, growing company but
retention alone doesn’t explain the difference between a
10% growth company and a 50% growth company.
For a company to grow faster than 50%, however,
retention above 100% is required. Strong new bookings
are not enough to propel a company into high-growth
status, it must also effectively and increasingly upsell into
the customer base or have a product that scales up with
each customer.
Gross retention does not share as strong of a relationship
with growth rates as net retention. The median gross
retention rate for slow or no growth businesses in the
survey was 89%, while it was 91% for all other businesses
growing at least 10%. So, similar to net retention, gross
retention needs to be at a stable and sufficient level, but
above that, it is not the main determinant of growth.
Retention And ChAnnel SAleS
Channel sales has been an area of increasing interest
for the SaaS model over the last few years, and we are
frequently asked about the impact of a channel sales
strategy on retention. First, there is no difference in net or
gross retention between companies that have a channel
program and those that do not. Both groups report 100
net and 90 gross retention.
However, both net and gross retention are lower for
companies who receive the majority of total revenue
through a channel partner versus those that sell mostly
directly: 101 net and 87 gross for the latter and 97 net
and 84 for the former. That said, while the number of
companies that run a channel program versus those that
80
85
90
95
100
105
Median Annual Reten�on PercentageAnnual Revenue Growth Rate
Net Reten�on
Gross Reten�on
SaaS Capital
80.0
85.0
90.0
95.0
100.0
105.0
Value-added
reseller
So�ware
company
Consul�ng firm Complementary
non-so�ware
company
Annual Reten�on PercentageChannel Partner Type
Net Reten�on
SaaS Capital
www.saas-capital.com
RETENTION
PAGE 3
do not is about 50/50, only about 10% of companies that
have a channel program receive a majority of revenue
from it.
Selling strategy does not appear to impact retention.
There is no clear relationship between retention
and whether the channel partner provides a simple
introduction between the customer and SaaS company,
or the customer is jointly sold by the partner and SaaS
company, or if the sale is 100% managed by the partner.
It also doesn’t appear to matter with whom you partner
with, except for upsell potential through a non-software
provider. In the chart above, the biggest difference among
the different potential partner types is lower net retention
when partnering with complementary non-software
companies.
Retention foR hoRizontAl VS. VeRtiCAl SolutionS
Two interesting points emerge when we segment by
whether a company sells a vertical focused product
(dental office management software) versus a horizontal
product (applicant tracking). Gross retention for
horizontal-focused companies is weaker, by 5 percent,
than that of their vertical peers. Interestingly, however, net
retention is close to equal between vertical and horizontal
companies, 99 versus 101.
Retention in VC-bACked VS. bootStRApped CompAnieS
How do bootstrapped companies compare to venture
capital-backed companies? Both net and gross retention
are 4 percentage points higher for venture-backed
companies.
Peeling back the data another layer, a much higher
percentage of VC-backed companies have a customer
success (CS) lead reporting to the CEO earlier in their
life than their bootstrapped peers. At about year 7 or 8,
bootstrapped companies have caught up, with about 61%
of both groups having a VP of CS at that point.
VC-backed companies also outspend bootstrapped
companies on customer success by about 20% in their
early years, but again, by about year 7 or 8, both groups
are spending about the same: 10% of revenue.
Despite eventually reaching parity with the VC-backed
companies on the investment in CS, bootstrapped
companies don’t ever close the churn gap with their VC-
backed counterparts. Instead, bootstrapped companies
in their early years have retention about 4 percent lower
than their VC-backed peers, and it remains about that
much lower through time.
ConCluSionS And tAkeAwAyS
•
Across all SaaS companies, net retention is 100% and
gross retention is 90%.
•
Gross retention is higher for higher-ACV products.
•
Gross churn is not correlated with growth rate, but
net churn is.
•
Companies selling a vertical product have higher
gross retention (89%) than companies selling a
horizontal product (83%). Net retention is about the
same for the two groups (99%).
•
Companies that receive more than 50% of total
revenue through a channel partnership have lower
retention than their peers.
•
Venture-backed companies have higher gross and
net retention than bootstrapped companies, by 4
percentage points.
•
Something not discussed above, but that we are
asked frequently, is whether payment frequency
(annual up-front versus monthly) impacts retention.
The data show virtually no difference in retention
rates between companies that receive customer
payments primarily on a monthly basis versus those
that predominately take annual up-front payments
(100% net and 90% gross for both).
“The biggest difference among the
different potential partner types is
lower net retention when partnering
with complementary non-software
companies. ”
www.saas-capital.com
RETENTION
PAGE 4
ABOUT SAAS CAPITAL
SaaS Capital is the leading provider of growth debt specifically designed for SaaS
companies. Focusing exclusively on the SaaS business model, SaaS Capital delivers
faster decisions, more capital, and longer commitments. SaaS businesses have used
SaaS Capital instead of equity to finance growth and create hundreds of millions of
dollars in enterprise value without sacrificing significant ownership or control. SaaS
Capital has offices in Cincinnati and Seattle.
Visit www.saas-capital.com to learn more.
1311 VINE STREET | CINCINNATI, OH, 45202
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
IWWW.SAAS-CAPITAL.COM
TODD GARDNER | FOUNDER AND MANAGING DIRECTOR | TGARDNER@SAAS-CAPITAL.COM | 513-368-4814
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529