Early-Stage SaaS Companies Enjoy Spectacular Growth

21 June 2023

Study of 2,100 SaaS companies shows sharp differences in growth rates according to the stage of the business.

news : Trends

The SaaS market offers significant opportunities for business growth as the cloud services market expands. But the pace at which companies expand differs greatly according the stage of the business, according to ChartMogul.

The software firm comments that “what is a good growth rate for a SaaS startup depends on the stage of your business.” It notes that “growth is fast in the early stages [then] as companies mature, the growth rate slows down.”

It says that the top quartile of businesses with average recurring revenue (ARR) of up to $300,000 grow 153% annually. At the other end of the scale, those with corresponding revenues of between $15 million and $30 million grow approximately 49% year on year.

ChartMogul SaaS Benchmarks Report

Those companies with a higher average revenue per account (ARPA) also grow “slightly” faster than the those with a lower amount ChartMogul notes. For median business it says that “the correlation is weak but is still present.”

ChartMogul SaaS Benchmarks Report

“No Easy Task”

Improving demand for cloud services is supercharging sales within the SaaS market. Indeed, Gartner reckons that this part of the subscription sector now accounts for the largest share of the cloud services sector.

It also makes up more than 50% of the total software marker, the researcher says. And it predicts that “this share is only expected to increase in the future.”

Early-stage businesses might have scope for rapid growth but the risks to success are also great. Gartner has described the process of launching and growing an SaaS company in the business-to-business (B2B) sector as “no easy task.”

It says that “any B2B SaaS providers looking to scale their business and customer base encounter various roadblocks, such as inadequate lead generation, high customer acquisition costs, low customer retention rates and less-than-optimal customer lifetime value (CLV).”

5 SaaS Growth Strategies to Scale Your Business Quickly, Gartner

Best Against The Rest

ChartMogul’s data also showed a wide difference between the growth rates of ‘best-in-class’ SaaS companies compared to others in the marketplace.

The firm said, for example, that the top decile of SaaS businesses with ARR of $1 million to $3 million grow 183% annually. This is far above growth of 70% and 27% for top quartile and median companies respectively. Those in the bottom quartile grow just 7% year on year.

The growth rate gap is especially large between early-stage ‘best-in-class’ companies and other companies at the same stage. Growth for businesses with ARR below $300,000 stands at 663% for the top decile. This compares with 153% for the top quartile.

Furthermore, the growth rate for firms with ARPA below $25,000 comes in at 279% for those in the ‘best-in-class’ grouping. By comparison, annual growth stands at 70% for companies inside the ‘good’ category.

ChartMogul SaaS Benchmarks Report

B2C vs B2B

The software firm also states that growth amongst business-to-customer (B2C) businesses outstrips growth across B2B companies “by a margin.”

It reports that “the top decile of B2C companies (usually companies with an ARPA less than $25/month) grow much faster than the top decile of B2B companies (ARPA >$25/month).” It said this is due to large market sizes and virality.

ChartMogul SaaS Benchmarks Report

Research from Gartner shows a huge rise in the number of B2C businesses operating subscription-based models. According to Gartner, three-quarters of these firms will offer subscription services to their clients. This is because “organisations can benefit from subscription commerce with repeatable and predictable revenue [while] customers like the convenience, cost savings and personalised curation,” the consultancy says.

Sales management business Chargebee says that subscription models allow businesses to gain revenues from higher plans at no additional cost. It explains that “once you have a customer locked in for a basic plan, your product(s) has an opportunity to prove its worth to the customers and make them want more.”

Chargebee also says subscription models offer other means of revenues expansion “such as up-selling and cross-selling new features and additional non-core products.” Other benefits include improving relationships with their consumers and lower spending to retain customers.

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