SaaS Revenue Retention Rates Vary According To Business Stage & Customer Type

28 June 2023

Retention rates for SaaS businesses improve as firms grow, research from the software firm shows.

news : Tech and Trends

Repeat revenue and customer retention rates can differ wildly depending on the stage of an SaaS company’s lifecycle, research from ChartMogul has shown.

Revenue and client retention also depends greatly on the type of customer that a business targets, the data company says.

It notes that “a high net revenue retention rate can help you achieve better growth, build a more capital-efficient business, and even get higher valuations from investors.”

ChartMogul says that “a good net retention rate differs by the stage of business.” Best-in-class companies with annual recurring revenue (ARR) below $300,000 had net revenue retention of 95% over a year, its data showed. This compares with 110% for those with ARR between $15m and $30m.

Meanwhile, SaaS companies within that top decile have annual revenues per account (ARPA) below $25 have net revenue retention of 82%. Those with ARPA above $1,000 enjoy a far-improved rate of 126%.

The customer retention rate of best-in-class businesses stands at 75% for those with sub-$25 ARPA. That compares with a reading of 92% for those with comparable revenues above $1,000. On an ARR basis the difference across the top quartile is less pronounced. It sits at 82% versus 86% between the lowest- and highest-ranked businesses by ARR.

ChartMogul SaaS Benchmarks Report

ChartMogul SaaS Benchmarks Report

Retention Rates Improve As SaaS Companies Grow

Explaining these differences, ChartMogul says that net revenue retention rates as “usually poor” during the pre-product market fit stage and that “as SaaS businesses grow and find product-market fit, net retention improves.”

It says that net revenue retention can often exceed 100% as companies scale up and become category leaders.

ChartMogul SaaS Benchmarks Report

ChartMogul SaaS Benchmarks Report

A net revenue retention rate north of 100% “indicates a strong product market fit and showcases your ability to compound revenue from your existing customer base,” ChartMogul says. SaaS companies within this category usually have high gross retention and a strong expansion loop, it adds.

Those businesses considered best-in-class have net revenue retention around the 110% marker.

ChartMogul SaaS Benchmarks Report

B2B Retention Rates Beat Those For B2C Companies

The definition of what constitutes a good net revenue retention rate also differs dramatically according to whether an SaaS company sells to business or to the consumer, ChartMogul says.

It notes that the top quartile of B2B SaaS companies with ARPA above $1,000 per month have net retention above 110%. By comparison, B2C firms in the top quartile who had ARPA of below $25 per month posted retention of just 70%.

The software firm says that retention is harder for B2C businesses to retain customers because expansion revenue – turnover generated in excess of a customer’s initial purchase – is lower. It notes that companies who sell to the consumer also have greater rates of customer churn.

“Churn is higher because of a lot of knee-jerk buying by the individual customers,” ChartMogul says. It adds that “expansion is lower because there are fewer upselling and cross-selling opportunities.”

At the same time, it says that B2B businesses benefit from “larger deal sizes, longer sales cycles, and generally more informed decision-making,” ChartMogul comments.

It notes that just 2% of B2C companies with monthly ARPA of below $25 have net revenue retention rates above 100%.

Best-in-class customer retention rate depends on a B2B company’s ARPA, ChartMogul notes, with rates improving as you move upmarket. This stands at 75% for firms with ARPA below $25 a month, for example, and 91.9% for those with a monthly ARPA above $1,000.

ChartMogul SaaS Benchmarks Report

The data firm also says that best-in-class net revenue retention for B2B firms ranges between 110% and 125%. It explains that “companies are able to upsell and cross-sell their products much more” at higher ARPAs, with 40% of new revenue for SaaS businesses with an ARPA of above $1,000 a month coming from expansion.

ChartMogul says this is why “a lot of B2B SaaS businesses employ the classic ‘land and expand’ strategy.”

Read our previous blog Early-Stage SaaS Companies Enjoy Spectacular Growth.

Customer retention rate: the percentage of customers that stay with a company over a given period of time.

Net revenue retention rate: the percentage of sales generated from repeat customers over a specified period.

Gross revenue retention rate: the percentage of turnover created from repeat customers, excluding expansion revenue (cross-sells, upsells and add-ons) over a particular period of time.

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