About Techcelerate Ventures
Tech Investment and Growth Advisory for Series A in the UK, operating in £150k to £5m investment market, working with #SaaS #FinTech #HealthTech #MarketPlaces and #PropTech companies.
www.saas-capital.com
PAGE 1
In the first quarter of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 9th annual survey, and it
continues to grow with over 1,400 private B2B SaaS companies responding this year, making it the largest survey of its kind. Below are our findings on
retention.
It also needs to be explicitly noted that this data was collected in early 2020 and is based on 2019 performance metrics, before the impact of the COVID-19
pandemic. Benchmarking comparisons should be made to the same time period for your company.
2020 B2B SAAS RETENTION BENCHMARKS
Based on 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.” Due to 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 business model.
First, let’s establish 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 is the most important, is based on revenue. We define net retention as:
(Monthly Recurring Revenue in December of 2019 only from customers who were customers in December 2018)
÷
(Total MRR in December 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 a fool-proof method, set
each customer’s 2019 MRR to be less than or equal to their 2018 MRR.) For this reason, gross retention cannot exceed 100%.
The data for very early-stage companies is so volatile that
we have excluded companies with less than $1 million in
ARR from the following analysis.
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 with a similar ACV 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.
RESEARCH BRIEF 21: RETENTION
96%
96%
101%
101%
100%
103%
105%
88%
90%
89%
90%
90%
90%
95%
80%
85%
90%
95%
100%
105%
110%
Less than
$6k
$6k to
$12k
$12k to
$25k
$25k to
$50k
$50k to
$100k
$100k to
$250k
More than
$250k
Median Annual Reten�onAnnual Contract Value
Net and Gross Revenue Reten�on by ACV
Net Median Revenue Reten�on
Gross Median Revenue Reten�on
SaaS Capital
www.saas-capital.com
PAGE 2
This year’s results mark two interesting differences from
what we have historically seen. The first is that data from our
previous annual surveys had consistently shown that higher
gross retention levels were directly correlated with higher ACVs.
This relationship made intuitive sense. Higher-priced solutions
more often involve a longer sales cycle, in-depth scoping
and implementation, and dedicated support and account
management. While the data still shows that the companies
with the very highest ACVs have the highest gross retention, it
is otherwise relatively consistent across the rest of the board.
The second change is that this year’s survey shows higher net
retention correlated with higher ACVs.
Previous surveys had shown that, aside from the very small ACV
segments, net retention was fairly consistent across all ACVs.
The new data show a general correlation of increasing net
retention with rising ACV.
We are not sure why the relationship switched this year. Data
from our own portfolio and discussions with prospective
borrowers have revealed that gross retention is the more
“natural base” retention. Net retention is more influenced by
organizational structure, compensation incentives, product
pricing and tiering, and product function. From those
anecdotes, we have seen gross retention more predictably
correlate with ACV and net retention to be more variable
company-to-company. We will again update this data next
year, although the bigger story will likely be the impact of the
coronavirus and economic shutdown.
Retention And GRowth RAte
The chart below shows the relationship between retention and
growth rate. Generally speaking, higher growth is associated
with higher retention and vice versa. This is the “leaky bucket”
metaphor. 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. The impact of retention is also cumulative
as it repeats and expands on itself year after year. The opposite
is also true.
There is a small but obvious trend of higher net retention
and higher growth for companies growing more than 10%
annually. This trend is intuitive as net retention includes
what are essentially new “sales” in the form of price increases,
upgrades, upsells, and cross sells, which help grow revenue
year-over-year. We need to be honest with the data, however,
and note that the differences are quite small, increasing
from 98% for companies growing 10% to 20% per year to
105% for companies growing more than 100% per year, so
we know that there is much more than just upsell ability
determining whether a company grows 10% or 100%. Other
factors impacting growth include the competitive landscape,
technology platform age (a.k.a. “technical debt”), marketing
budget, and pricing methodology.
Gross retention does not share as strong of a relationship
with growth rates as net retention for companies that report
positive growth. The median gross retention rate for a
company growing at least 10% was 90%, and relatively flat
across all growth rates.
Flat or shrinking revenue is correlated to poor gross and net
retention, and in a meaningful way. Back to the leaky bucket –
if customers leave regularly, it is difficult to grow.
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, as was the case in our 2019 survey, 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.
Selling strategy shows a slight potential impact on retention.
While there is no meaningful difference between retention and
whether the channel partner provides a simple introduction or
the customer is jointly sold by the partner, net retention drops
to 95% if the sale is 100% managed by the partner.
Retention foR hoRizontAl VS. VeRtiCAl SolutionS
Looking at whether a company sells a vertical-focused product
(dental office management software) versus a horizontal
product (new hire applicant tracking) shows virtually no
difference in retention. Net median revenue retention
was the same at 100%, while gross retention was 90% for
vertical-focused companies and 89% for horizontal-focused
companies.
83%
92%
92%
98%
98%
100%
101%
103%
101%
105%
73%
83%
88%
91%
91%
90%
90%
90%
89%
93%
70%
75%
80%
85%
90%
95%
100%
105%
110%
Nega�ve
Flat
0% to
10%
10% to
20%
20% to
30%
30% to
40%
40% to
50%
50% to
75%
75% to
100%
More
than
100%
Median Annual Reten�onAnnual Revenue Growth Rate
Net and Gross Revenue Reten�on by Growth
Net Median Revenue Reten�on
Gross Median Revenue Reten�on
SaaS Capital
www.saas-capital.com
PAGE 3
Retention in VC-bACked VS. bootStRApped CompAnieS
How do bootstrapped companies compare to VC-backed companies? Data from our 2019 survey showed that both net and gross
retention averaged 4 percentage points higher for VC-backed companies when compared to their bootstrapped peers. This year,
we find VC-backed companies holding the 4-percentage point lead in net retention with 101%, versus bootstrapped companies
reporting 97%. However, bootstrapped companies narrowed the
gap on gross retention to just 1 percentage point, supporting
the comments above that gross retention is the “natural base”
retention.
Higher average net retention for VC-backed companies makes
sense from the standpoint VC firms are looking for exceptional
returns from a few significant outliers. Previous research has
also shown that a higher percentage of VC-backed companies
have a customer success (CS) lead reporting to the CEO earlier in
their life than their bootstrapped peers, and younger companies
spend more on CS when they have VC backing.
ConCluSionS And tAkeAwAyS
•
Across all SaaS companies, median net retention is 100% and median gross retention is 90%, consistent with prior years’ data.
•
Net retention is higher for higher-ACV products, while gross retention was mostly flat across ACVs. This relationship was
reversed from prior years.
•
For companies with ACVs below $250k, 90% gross retention is the norm. Very high ACV companies should benchmark to
95%.
•
Companies with ACVs of $12k or higher report median net retention of 100%.
•
Gross churn is not correlated with growth rate, but net churn is.
•
The data show that high growth and high retention are correlated.
•
Except for very low growth or shrinking companies, gross retention appears uncorrelated with growth rates.
•
This year, venture-backed companies reported similar gross retention as bootstrapped companies. Previously they had
reported higher gross retention. VC-backed companies still reported slightly higher net retention.
•
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. Both
groups show 100% net retention. Those receiving annual up-front payments reported 90% gross retention while those
receiving monthly payments reported 91% retention.
•
As a final note, it is worth repeating that this data was reported before the impact of the COVID-19 pandemic. Our survey
data show that the number of SaaS companies serving a vertical industry and those with a horizontal product offering are
about evenly split. Horizontal-positioned companies are somewhat better insulated from the impact of the crisis as they
span across different industries. Vertically-oriented products are more impacted. Companies focused on health, digital
remote communication, telemedicine, logistics, and food supply chain/grocery verticals are all benefitting from the situation.
Companies focused on restaurants, non-essential shopping, and retail are all struggling. In the former case, new bookings
are outpacing the original 2020 plans. In the latter case, new bookings have slowed, sometimes substantially, but increased
churn is just starting to materialize. The ultimate level is still unknown and will vary by company. Best of luck to all operators
as you navigate this unprecedented economic time.
“Across all SaaS companies, median
net retention is 100% and median
gross retention is 90%, consistent
with prior years’ data. ”
www.saas-capital.com
PAGE 4
SaaS Capital is the leading provider of growth debt designed explicitly for B2B SaaS companies. SaaS Capital’s growth debt is
structured to provide a significant source of committed funding, deployment flexibility, and lower overall cost of capital, all while
avoiding the loss of control and dilution associated with selling equity. SaaS Capital was the first to offer lending alternatives to SaaS
businesses based on their future recurring revenue. Since 2007, SaaS Capital has deployed $209.5 million in growth debt to deliver
better outcomes for 65+ clients, resulting in $753 million in total enterprise value created.
Benefits of SaaS Capital’s unique, SaaS-focused approach:
•
Higher advance rates - Capital availability is based on a multiple of your
monthly recurring revenue (MRR) – typically 4x to 7x MRR
•
Capital availability that grows with your business - The amount of
capital that you can draw increases automatically as your revenue grows
•
Long-term source of capital - The capital is drawn down over 2 years
under the committed line of credit, and then either renewed, or repaid
over the following 3 to 4 years
•
Efficient use of capital - Capital is drawn down only as your business
needs it, thereby reducing your interest expense
•
Flexibility - No balance sheet covenants or cash reserve requirements
SaaS Capital is best able to assist companies with the following attributes:
•
Sells a SaaS-based solution
•
Seeking $2M to $10M in growth capital
•
$250,000, or above, in MRR
•
History of renewals greater than 80%
•
Registered and principally banked in the U.S., Canada, or UK
•
Revenue growth above 15% per year
Your business does NOT need to be:
•
Venture Backed
•
Profitable
•
Billing your customers monthly
Visit www.saas-capital.com to learn more.
1311 VINE STREET | CINCINNATI, OH, 45202
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
WWW.SAAS-CAPITAL.COM
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529
STEVE JAFFEE | MANAGING DIRECTOR | SJAFFEE@SAAS-CAPITAL.COM | 614-506-2770
About SaaS Capital
PAGE 1
In the first quarter of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 9th annual survey, and it
continues to grow with over 1,400 private B2B SaaS companies responding this year, making it the largest survey of its kind. Below are our findings on
retention.
It also needs to be explicitly noted that this data was collected in early 2020 and is based on 2019 performance metrics, before the impact of the COVID-19
pandemic. Benchmarking comparisons should be made to the same time period for your company.
2020 B2B SAAS RETENTION BENCHMARKS
Based on 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.” Due to 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 business model.
First, let’s establish 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 is the most important, is based on revenue. We define net retention as:
(Monthly Recurring Revenue in December of 2019 only from customers who were customers in December 2018)
÷
(Total MRR in December 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 a fool-proof method, set
each customer’s 2019 MRR to be less than or equal to their 2018 MRR.) For this reason, gross retention cannot exceed 100%.
The data for very early-stage companies is so volatile that
we have excluded companies with less than $1 million in
ARR from the following analysis.
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 with a similar ACV 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.
RESEARCH BRIEF 21: RETENTION
96%
96%
101%
101%
100%
103%
105%
88%
90%
89%
90%
90%
90%
95%
80%
85%
90%
95%
100%
105%
110%
Less than
$6k
$6k to
$12k
$12k to
$25k
$25k to
$50k
$50k to
$100k
$100k to
$250k
More than
$250k
Median Annual Reten�onAnnual Contract Value
Net and Gross Revenue Reten�on by ACV
Net Median Revenue Reten�on
Gross Median Revenue Reten�on
SaaS Capital
www.saas-capital.com
PAGE 2
This year’s results mark two interesting differences from
what we have historically seen. The first is that data from our
previous annual surveys had consistently shown that higher
gross retention levels were directly correlated with higher ACVs.
This relationship made intuitive sense. Higher-priced solutions
more often involve a longer sales cycle, in-depth scoping
and implementation, and dedicated support and account
management. While the data still shows that the companies
with the very highest ACVs have the highest gross retention, it
is otherwise relatively consistent across the rest of the board.
The second change is that this year’s survey shows higher net
retention correlated with higher ACVs.
Previous surveys had shown that, aside from the very small ACV
segments, net retention was fairly consistent across all ACVs.
The new data show a general correlation of increasing net
retention with rising ACV.
We are not sure why the relationship switched this year. Data
from our own portfolio and discussions with prospective
borrowers have revealed that gross retention is the more
“natural base” retention. Net retention is more influenced by
organizational structure, compensation incentives, product
pricing and tiering, and product function. From those
anecdotes, we have seen gross retention more predictably
correlate with ACV and net retention to be more variable
company-to-company. We will again update this data next
year, although the bigger story will likely be the impact of the
coronavirus and economic shutdown.
Retention And GRowth RAte
The chart below shows the relationship between retention and
growth rate. Generally speaking, higher growth is associated
with higher retention and vice versa. This is the “leaky bucket”
metaphor. 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. The impact of retention is also cumulative
as it repeats and expands on itself year after year. The opposite
is also true.
There is a small but obvious trend of higher net retention
and higher growth for companies growing more than 10%
annually. This trend is intuitive as net retention includes
what are essentially new “sales” in the form of price increases,
upgrades, upsells, and cross sells, which help grow revenue
year-over-year. We need to be honest with the data, however,
and note that the differences are quite small, increasing
from 98% for companies growing 10% to 20% per year to
105% for companies growing more than 100% per year, so
we know that there is much more than just upsell ability
determining whether a company grows 10% or 100%. Other
factors impacting growth include the competitive landscape,
technology platform age (a.k.a. “technical debt”), marketing
budget, and pricing methodology.
Gross retention does not share as strong of a relationship
with growth rates as net retention for companies that report
positive growth. The median gross retention rate for a
company growing at least 10% was 90%, and relatively flat
across all growth rates.
Flat or shrinking revenue is correlated to poor gross and net
retention, and in a meaningful way. Back to the leaky bucket –
if customers leave regularly, it is difficult to grow.
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, as was the case in our 2019 survey, 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.
Selling strategy shows a slight potential impact on retention.
While there is no meaningful difference between retention and
whether the channel partner provides a simple introduction or
the customer is jointly sold by the partner, net retention drops
to 95% if the sale is 100% managed by the partner.
Retention foR hoRizontAl VS. VeRtiCAl SolutionS
Looking at whether a company sells a vertical-focused product
(dental office management software) versus a horizontal
product (new hire applicant tracking) shows virtually no
difference in retention. Net median revenue retention
was the same at 100%, while gross retention was 90% for
vertical-focused companies and 89% for horizontal-focused
companies.
83%
92%
92%
98%
98%
100%
101%
103%
101%
105%
73%
83%
88%
91%
91%
90%
90%
90%
89%
93%
70%
75%
80%
85%
90%
95%
100%
105%
110%
Nega�ve
Flat
0% to
10%
10% to
20%
20% to
30%
30% to
40%
40% to
50%
50% to
75%
75% to
100%
More
than
100%
Median Annual Reten�onAnnual Revenue Growth Rate
Net and Gross Revenue Reten�on by Growth
Net Median Revenue Reten�on
Gross Median Revenue Reten�on
SaaS Capital
www.saas-capital.com
PAGE 3
Retention in VC-bACked VS. bootStRApped CompAnieS
How do bootstrapped companies compare to VC-backed companies? Data from our 2019 survey showed that both net and gross
retention averaged 4 percentage points higher for VC-backed companies when compared to their bootstrapped peers. This year,
we find VC-backed companies holding the 4-percentage point lead in net retention with 101%, versus bootstrapped companies
reporting 97%. However, bootstrapped companies narrowed the
gap on gross retention to just 1 percentage point, supporting
the comments above that gross retention is the “natural base”
retention.
Higher average net retention for VC-backed companies makes
sense from the standpoint VC firms are looking for exceptional
returns from a few significant outliers. Previous research has
also shown that a higher percentage of VC-backed companies
have a customer success (CS) lead reporting to the CEO earlier in
their life than their bootstrapped peers, and younger companies
spend more on CS when they have VC backing.
ConCluSionS And tAkeAwAyS
•
Across all SaaS companies, median net retention is 100% and median gross retention is 90%, consistent with prior years’ data.
•
Net retention is higher for higher-ACV products, while gross retention was mostly flat across ACVs. This relationship was
reversed from prior years.
•
For companies with ACVs below $250k, 90% gross retention is the norm. Very high ACV companies should benchmark to
95%.
•
Companies with ACVs of $12k or higher report median net retention of 100%.
•
Gross churn is not correlated with growth rate, but net churn is.
•
The data show that high growth and high retention are correlated.
•
Except for very low growth or shrinking companies, gross retention appears uncorrelated with growth rates.
•
This year, venture-backed companies reported similar gross retention as bootstrapped companies. Previously they had
reported higher gross retention. VC-backed companies still reported slightly higher net retention.
•
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. Both
groups show 100% net retention. Those receiving annual up-front payments reported 90% gross retention while those
receiving monthly payments reported 91% retention.
•
As a final note, it is worth repeating that this data was reported before the impact of the COVID-19 pandemic. Our survey
data show that the number of SaaS companies serving a vertical industry and those with a horizontal product offering are
about evenly split. Horizontal-positioned companies are somewhat better insulated from the impact of the crisis as they
span across different industries. Vertically-oriented products are more impacted. Companies focused on health, digital
remote communication, telemedicine, logistics, and food supply chain/grocery verticals are all benefitting from the situation.
Companies focused on restaurants, non-essential shopping, and retail are all struggling. In the former case, new bookings
are outpacing the original 2020 plans. In the latter case, new bookings have slowed, sometimes substantially, but increased
churn is just starting to materialize. The ultimate level is still unknown and will vary by company. Best of luck to all operators
as you navigate this unprecedented economic time.
“Across all SaaS companies, median
net retention is 100% and median
gross retention is 90%, consistent
with prior years’ data. ”
www.saas-capital.com
PAGE 4
SaaS Capital is the leading provider of growth debt designed explicitly for B2B SaaS companies. SaaS Capital’s growth debt is
structured to provide a significant source of committed funding, deployment flexibility, and lower overall cost of capital, all while
avoiding the loss of control and dilution associated with selling equity. SaaS Capital was the first to offer lending alternatives to SaaS
businesses based on their future recurring revenue. Since 2007, SaaS Capital has deployed $209.5 million in growth debt to deliver
better outcomes for 65+ clients, resulting in $753 million in total enterprise value created.
Benefits of SaaS Capital’s unique, SaaS-focused approach:
•
Higher advance rates - Capital availability is based on a multiple of your
monthly recurring revenue (MRR) – typically 4x to 7x MRR
•
Capital availability that grows with your business - The amount of
capital that you can draw increases automatically as your revenue grows
•
Long-term source of capital - The capital is drawn down over 2 years
under the committed line of credit, and then either renewed, or repaid
over the following 3 to 4 years
•
Efficient use of capital - Capital is drawn down only as your business
needs it, thereby reducing your interest expense
•
Flexibility - No balance sheet covenants or cash reserve requirements
SaaS Capital is best able to assist companies with the following attributes:
•
Sells a SaaS-based solution
•
Seeking $2M to $10M in growth capital
•
$250,000, or above, in MRR
•
History of renewals greater than 80%
•
Registered and principally banked in the U.S., Canada, or UK
•
Revenue growth above 15% per year
Your business does NOT need to be:
•
Venture Backed
•
Profitable
•
Billing your customers monthly
Visit www.saas-capital.com to learn more.
1311 VINE STREET | CINCINNATI, OH, 45202
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
WWW.SAAS-CAPITAL.COM
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529
STEVE JAFFEE | MANAGING DIRECTOR | SJAFFEE@SAAS-CAPITAL.COM | 614-506-2770
About SaaS Capital