SaaS Myths Debunked with Data
Software-as-a-Service (SaaS) companies start with a certain set of ideas about what customers want and how they’re going to make money. Freemium, up-selling, online-only sales…the list goes on.
As a technology journalist, I used to hear all the arguments for how SaaS business were superior to the old-guard enterprise software incumbents. Yet now that I’m inside a startup offering a cloud-based service, I see that it’s a little more complicated.
David Spitz and his team at Pacific Crest, a boutique investment bank, have a remarkable presentation available that breaks down some of the myths of SaaS-style businesses. The presentation is based on a survey of 70 private companies selling SaaS to enterprise and SMB customers.
- Up-sell isn’t a strong strategy, accounting for just 20% of customer average value.
- Companies got strong revenue growth from field & inside sales. Online-only sales appear aspirational.
- Professional services are great for margins, out-performing industry averages by a long shot, but only accounting for a single-digit percentage of revenue.
- “Try-before-you-buy” is displacing fremium and fremium isn’t converting.
- Median YoY increase in marketing spend is 32 percent.
- Median yearly contract value is $37,500.
- Yearly billing is more popular than monthly billing, but month-to-month is more popular for yearly contract values under $5,000.
- 87% annual renewal rate.
- Month-to-Month contracts churn at 18 percent.
[HT: Brad Feld]