SaaS growth happens when Software-as-a-Service (SaaS) companies expand their revenue, market share, and customer base.
The demand for SaaS solutions is increasing, and investors are paying close attention to this momentum.
So how do you grow until you’re like…
In this guide, we’ll explain what SaaS growth is, why it’s important, and how to calculate it.
We’ll also show you a reasonable SaaS growth rate, five growth hacking tips, and vital SaaS metrics to track.
This Article Contains
- What Is SaaS Growth?
- 4 Crucial Insights You Gain from Tracking Your SaaS Growth
- 3 Ways to Calculate Business Growth
- Growth-Based Benchmarks in the SaaS Industry
- 5 Foolproof Ways to Fire-up Your SaaS Growth
- Other SaaS-Related Metrics to Measure Your Success
Let’s get started!
What Is SaaS Growth?
All SaaS companies want to understand the rate at which they’re increasing their customer base and recurring revenue, because…
So how do you know your company is growing?
Your rate of growth provides insight into the overall health of your SaaS operation, which you can track via the following metrics:
- Acquisition: The number of customers you gain.
- Activation: The number of users that reach SaaS app milestones.
- Retention: The rate at which existing customers stay with your business.
- Referral: The number of customers you gain from referrals.
- Revenue: The money your SaaS company generates.
They’re called pirate metrics (more on this later!).
Why?
Well, they go AARRR! 🏴☠️
As in, that’s their acronym 😉
With these metrics, you can keep an eye on trends in your earnings. Naturally, upward movement indicates a thriving, profitable business, and downward trends can help you catch any red flags 🚩 that need addressing.
For a SaaS business, it’s important to maintain and track consistent long-term growth.
Let’s find out why.
4 Crucial Insights You Gain from Tracking Your SaaS Growth
Business growth is a key factor in assessing your company’s sustainability, valuation, and potential for future success.
Let’s take a closer look at these benefits:
- Sustainability: Most companies prefer to minimize dependence on outside sources to avoid incurring significant financial debt. Tracking the results of your SaaS growth strategy helps you estimate how long you can facilitate development organically before borrowing money.
- Profitability: Increasing your recurring revenue helps you evaluate your current budget and pricing strategies. Slower or downward SaaS trends indicate that you may need to adjust your approach or reconsider how you’re allocating resources to your SaaS operation to keep yourself afloat.
- Potential: Your current growth trajectory can illuminate your future potential for success. This can show if you’re on the right track or not.
- Value to investors: Showcasing your business growth is vital for securing funding from investors. It can help them determine the potential return on investment (ROI).
The above factors reflect the overall value of your SaaS company — if calculated correctly.
And that begs the question:
How do you accurately measure your business growth rate?
It turns out, many SaaS metrics can reveal useful information about your company’s potential to grow. But let’s keep things simple and focus on revenue…
3 Ways to Calculate Business Growth
Quantifying your SaaS revenue boils down to three main factors:
1. Revenue Growth
The simplest way to calculate revenue growth involves one key growth metric: MRR (monthly recurring revenue).
What’s that?
Monthly recurring revenue predicts the total earnings your business generates from subscriptions every month. Figuring out your NMG (net MRR growth) is how you measure your month-over-month increase in recurring revenue.
And if you’re thinking…
Don’t worry, it’s actually pretty simple!
Let us walk you through it.
The formula is as follows:
NMG = (Current month’s MRR – Previous month’s MRR )/ Previous month’s MRR * 100
For example, let’s say your current MRR is $200,000 while last month’s MRR was $160,000. Your calculation will be:
NMG = ($200,000 – $160,000) / $160,000 * 100 = 25%
2. NDR (Net Dollar Retention)
NDR, also known as NRR (Net Revenue Retention), shows how much your MRR or ARR (Annual Recurring Revenue) grows or shrinks over time by considering two factors:
- Expansion revenue: Any earnings you get from upselling, cross-selling, or other additional purchases.
- Revenue churn: Earnings lost from cancellations and downgrades.
It helps you assess how well your SaaS company satisfies the needs of your existing customer base.
The formula for NDR is as follows:
NDR = (Previous month’s MRR + Expansion revenue – Revenue churn) / Previous month’s MRR * 100
Let’s say your previous monthly recurring revenue was $160,000. This month, your expansion revenue is $4,000, and your revenue churn is $2,000.
Your NDR = ($160,000 + $4,000 – $2,000 )/ $160,000 * 100 = 101.2%
3. NRG (Natural Rate of Growth)
NRG measures PLG (product led growth) — a business model that measures how many customers your SaaS solution acquires because of the product and without the proactive involvement of the sales team.
For this calculation, you’ll need to know:
- % of ARR from product = Percentage of users who started using your SaaS tool without talking to sales.
- % of AGR (Annual Growth Rate) = (Current ARR – ARR from the previous year) / ARR from the previous year * 100
- Organic signups = A new customer obtained from referrals or organic searches.
- % of organic signups = No. of organic signups / Total no. of signups * 100
Based on the data points above, NRG is calculated as follows:
NRG = (% Organic signups * % ARR from product * % AGR) * 100
Let’s say you acquired 15% of your signups organically, have an AGR of 80%, and 60% of your annual recurring revenue comes solely from your SaaS tool.
Your NRG calculation is: = (15% * 60% * 80%) * 100 = 7.2%
Now you may be wondering… What should my growth rate goal be?
Let’s explore growth-related SaaS trends.
Growth-Based Benchmarks in the SaaS Industry
When comparing your performance against another SaaS business, there’s one main thing to keep in mind:
Don’t compare a startup to a well-established SaaS company.
Larger-scale businesses (i.e., Dropbox, Microsoft, or Salesforce) might generate more SaaS revenue, but their growth rate slows. As such, using SaaS trends from similarly sized companies as a point of reference is far more relevant and useful.
Here are some SaaS growth rate benchmarks for startups per their MRR stage:
- <$10k MRR stage: Early-stage startups grow by a monthly average of 4.4%.
- $50k MRR stage: Mid-stage startups grow by a monthly average of 3.1%.
- >$100k MRR stage: Late-stage startups begin to see revenue growth slow, but the rate sustains a monthly average of 2% or more.
Alternatively, you could use a more general financial framework — like the “Rule of 40.”
The “Rule of 40” principle states that a SaaS company’s combined profit margin and growth rate should surpass 40%.
To see if you’re hitting the 40% target, simply add your revenue growth and profit margin together.
For example, if your revenue growth is 25% and your profit margin is 10%, you’ll have 35%, which is below your target.
This growth metric is specific to the SaaS industry because companies in the software sector can reach high margins of 75% or more. As such, it serves as an essential baseline for investors who want to quickly compare your performance against other companies they’re interested in.
So if you think of growing your SaaS business like a workout, it’s all about getting them gains! 💪
But how do you ensure that you’re hitting your goals?
Let’s discuss how to grow in the SaaS market without breaking a sweat.
5 Foolproof Ways to Fire-up Your SaaS Growth 🔥
To fine-tune your SaaS growth strategy, you must:
1. Develop an Effective Customer Acquisition Marketing Strategy
The SaaS market is such a highly competitive space. You need a smart growth strategy to attract prospects, increase your conversion rate, and improve customer satisfaction.
To become a boss at growth hacking, you could use paid advertising to drive traffic to your site or product’s landing pages. Once your SaaS solution catches a lead’s attention, your marketing team must nurture them until they’re ready to convert.
Nurturing tactics include sending personalized emails, creating targeted content, or making timely phone calls.
Remember, nurturing goes beyond the initial purchase if you want an existing customer to be like:
So keep an eye on customer satisfaction with surveys (i.e., net promoter score) and reduce customer churn by having a customer success team follow up on conversions.
2. Boost Activation Rates with Exceptional User Onboarding
User onboarding is one of the best ways to help users become more familiar with your SaaS product, improve activation rates, and reduce customer churn.
A well-crafted onboarding process should provide support throughout their journey with timely SaaS app messages, notifications, activities, interactive walkthroughs, and more.
Such strong customer support can help guide users to their “Aha moment,” which is basically the moment they go:
… And discover the value of your SaaS solution.
A simple, personalized, straightforward onboarding experience can transform an uncertain user into a happy new customer.
3. Build a Powerful Marketing and Sales Team
Companies with a product led growth model depend more on the product experience itself than marketing and sales efforts. That said, investing in your marketing and sales team is still important.
Marketers are responsible for researching a potential customer, nurturing them, and persuading them to enter the sales funnel.
Once your growth marketing efforts have hooked users, the sales team can focus on scoring leads and boosting your conversion rate.
Also, metrics like customer acquisition cost can help you assess whether you’re seeing high enough returns on your customer acquisition investments. If not, you might need to reallocate resources or adjust your marketing strategy accordingly.
4. Create a Strong Pricing Strategy
You must understand your target audience to create pricing plans that suit their needs and budget.
You can create tiered pricing based on:
- SaaS app usage
- Monthly or annual subscriptions
- Access levels
But how do you decide which model to opt for?
Product usage data can assist this goal, as it provides insight into the value your SaaS product gives to customers. With this information, you can tailor pricing tiers according to different segments of your audience.
Such individualized, targeted tiers can help accommodate your customers’ specific requirements and offer more flexibility. Just make sure you clearly highlight each plan’s benefits, features, and pricing.
And finally, test and trial your pricing strategy. Your pricing plans aren’t set in stone, so be open to adjusting them based on customer feedback.
5. Invest in SEO and Content Marketing
Don’t underestimate the power of a smart SEO and content marketing growth strategy!
Organic search is one of the most valuable marketing channels around. An incredible 53% of all traceable website traffic comes from organic search.
And, on average, first search results get a 32% organic click-through rate.
Now, your competitors will likely rank for keywords relevant to your business. That’s why you need SEO to outrank them, make your site discoverable on search engines, and get more people to click on your result first.
Want to know how to pull off growth marketing with SEO?
Watch your organic traffic surge with Startup Voyager, a content and SEO agency that helps SaaS companies develop and optimize exceptional, conversion-driven content.
We can help your articles rank on page one and grow your organic traffic by 4-20 times within a year!
Contact us today and give your SaaS operation the boost it needs with exceptional organic traffic growth!
But wait, remember those pirate metrics we touched on earlier?
You’ll need these SaaS metrics to measure the effectiveness of your growth strategy.
Let’s dive in.
Other SaaS-Related Metrics to Measure Your Success
Evaluate your customer success with these important SaaS metrics:
- CAC (Customer Acquisition Cost): This metric measures how much money you spend on attaining each new customer. With this growth metric, you can assess the cost-efficiency of your customer acquisition efforts.
- Activation Rate: This measures the percentage of users who have performed actions that indicate they see the value of your SaaS product and are likely to purchase. It helps you to see whether you’re successfully expanding your user base.
- Customer Retention Rate: This measures how many people in your existing customer base continue using your service after a certain period. Your customer retention rate helps you see if your churn rate is low enough and identify opportunities to improve customer satisfaction so you can keep growing!
- Virality Coefficient: The virality coefficient measures how many new users you generate from customers who become referrers. This is vital for demonstrating how a referral program adds to your organic recurring revenue.
- ARPU (Average Revenue Per User): This metric measures how much SaaS revenue you generate from each customer monthly or yearly. ARPU is critical for determining your company’s profitability.
Expand Profits with a Comprehensive SaaS Growth Strategy
Ultimately, growing in the SaaS market is crucial because it allows you to build a predictable, stable, and scalable business model focusing on long-term customer success.
Increasing revenue, improving customer retention, and maximizing profits are core components of any growth-based marketing strategy. Tracking the key metrics this post covers can help determine whether you’re achieving these goals.
And with strategic SEO and content marketing, Startup Voyager can help you reel more visitors and 20x your organic growth!
