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Benchmarking Churn Across the SaaS Ecosystem

TODD GARDNER

#Pulse2017

Practical Strategies for Benchmarking Your Retention

BENCHMARKING CHURN ACROSS THE SAAS ECOSYSTEM

Practical Strategies for Benchmarking Your Retention

May 10, 2017

© SaaS Capital | www.saas-capital.com 3

What Does SaaS Capital Know About Churn?

• Funded 45 successful SaaS companies across a wide spectrum of ACVs and verticals – Series A/B/C alternative

• Reviewed the churn metrics of thousands of SaaS companies

• Conduct the largest private SaaS company survey on churn in the industry: 700+ respondents for 2017 survey


What to Benchmark?

• Retention = MRR today from customers a year ago / MRR a year ago

• Gross retention is the purest measure of retention

• Net retention combines and obfuscates two very different capabilities: customer retention vs. the capacity to cross-sell, upsell, and raise prices

• Net Retention = 100% (70% Gross + 30% upsell) very different from Net Retention = 100% (100% Gross + 0% upsell)

• Gross Retention should be benchmarked vs. companies with similar ACV products (NetSuite very different than Carbonite)


Gross Revenue Retention by Annual Contract Value


Median Gross Retention by Company Age

Beware of the False Positive Problem


Sample Cohort Analysis: Revenue Retention by Month

0%

20%

40%

60%

80%

100%

120%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Revenu

eRe

tained

Months

Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16


Median Retention by Company Size

Retaining Customers

Gets Harder as You Grow


Impact of Customer Success on Net Retention

Customer Success Makes

a Difference


Growth Rate Based on Net Revenue Retention

Each 1% Improvement in Net Retention

Increases Growth Rate 1%


Changes in Retention are Exponential

Growth Rate is also 15% to 30% greater

Revenue is 15% to 30% greater


How Growth and Scale Impact Valuation

0x

2x

4x

6x

8x

10x

12x

14x

16x

-10% 0% 10% 20% 30% 40% 50% 60%

REvenu

eMultip

le

RevenueGrowthRate

Salesforce

Workday

ServiceNow

Hubspot

DemandWare

Covisint

Source:Pacific CrestSecuritiesandSaaSCapital,2015

DealerTrak


Size of ARR

Growth of MRR

Predict-ability of

MRR

Company Valuation

up 72%!

20% More Revenue

Valuation MultipleUp from 5.0x to 7.1x

Over Time, Churn has a Massive Impact on Company Valuation


Takeaways:

• Gross retention is the purest measure of retention

• When Benchmarking retention, account for ACV

• Improving churn is “swimming upstream” as your company matures

• Improved retention increases your company's value exponentially

• SaaS Capital is awesome

benchmarking churn across the saas ecosystem...click to edit master title style benchmarking churn...

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