Easy guide to SaaS benchmarks | 2024

Benchmarking a SaaS product or company can be challenging. There are many variables one needs to consider and it can be easy to get distracted by vanity metrics. 

The goal of this guide is to give you a breakdown of the importance of SaaS benchmarks. We’ll also explore different types of benchmarks within this industry.

We’ll cover:

• A data-backed explanation of the current SaaS growth trends
• An explanation of why SaaS benchmarks are so vital
• Critical SaaS benchmarks explained one by one
• A quick look at some benefits of tracking SaaS benchmarks closely 

Let’s begin.

Current SaaS growth trends

Understanding current growth trends is paramount for longevity in SaaS. Recent data reveals a nuanced picture, marked by a moderation in growth rates compared to the exceptional surge witnessed in 2020 and 2021.

While the era of hypergrowth might be waning, the SaaS sector is far from stagnant. Top-performing companies continue to achieve remarkable growth, albeit more sustainably. 

Notably, SaaS businesses with annual recurring revenue (ARR) between $1 million and $30 million experienced a significant 62.1% growth in 2022. This shows that while the market is maturing, significant growth opportunities remain.

A key trend shaping the current landscape is the growing importance of expansion revenue. Acquiring new customers has become more challenging. Therefore, SaaS businesses strategically focus on their existing customer base to fuel growth. 

Expansion revenue is becoming a driver of revenue generation. Data indicates a notable increase in the proportion of ARR derived from expansion. It rose from 28.8% in 2020 to 32.3% in 2023.

Customer retention has emerged as a linchpin for success. Customers are becoming more discerning in their spending habits. Thus, retaining existing customers is becoming more important than ever. 

Companies that excel in customer retention are outpacing their competitors in growth. This underscores the value of fostering strong customer relationships and delivering ongoing value.

While the SaaS market is recalibrating, there are signs of stabilization. Some companies are even witnessing an uptick in growth in recent quarters, whichsuggests that the market might be finding a new equilibrium.

Why are SaaS benchmarks so important?

SaaS benchmarks are like a compass. They guide you through the landscape of the SaaS industry. They give you valuable insights into how your company is performing compared to the broader market. Their main appeal is helping you make better decisions and chart a course for success.

Let’s take a deeper look at their importance based on three key points: 

Performance comparison with industry standards

Benchmarks offer an objective way to assess your company's performance. 

First, look at your growth rate, profitability, customer acquisition cost, and other key metrics. Then, compare said metrics against industry standards. This will help you quickly identify areas where you're doing well and areas that need work.

For example, if your ARR growth rate is below the industry benchmark, it might be a sign that you need to reassess your sales and marketing strategies. On the other hand, if your net margin is above the benchmark, it may be a testament to your cost management.

Better and more strategic planning

Benchmarks are useful for measuring past performance, but they're also useful for planning for the future. Knowing where your company stands about your competitors lets you make more strategic decisions.

• Should you focus on new customers or expand within your current customer base?
•  Is your pricing aligned with the market? 
• Are you investing enough in product development? 

Benchmarks can help you answer these questions and more. They enable you to develop an ambitious yet realistic growth roadmap.

A boost of interest from investors 

Benchmarks can be a powerful tool for attracting and retaining investors. You can instill confidence in your investors by showing that your company is performing at or above industry standards. This means securing the funds you need will be less of an uphill battle. 

Investors are looking for companies with high growth rates. However, they're also looking for companies that are sustainable and profitable. Benchmarks can help you showcase your company's financial health and long-term potential.

Growth benchmarks

In SaaS, growth is the name of the game. But what's a good growth rate? Well, it’ll depend on some factors:

• Stage of business: Early-stage startups capable of incredible acceleration. As companies mature, growth naturally slows down. Don't be discouraged if your growth rate isn't in the triple digits. What's considered "good" varies depending on where you are in your journey.
• The rule of 40: This is a popular benchmark that balances growth and profitability. It suggests that your ARR growth rate and net profit margin should equal at least 40%. 
• Top performers vs. others: Top-performing SaaS companies are growing three times faster than their peers. This shows that exceptional growth can be achieved while maintaining profitability.‍

Key insight: Don't sacrifice profitability for the sake of growth. Sustainable growth is the key to long-term success in the SaaS industry.

Retention benchmarks

In SaaS, your retention benchmarks measure how well you keep your existing customers. Let’s look at some more key insights related to these benchmarks: 

• Net revenue retention (NRR): It measures the percentage of revenue retained over a period of time. It includes expansion revenue from upsells and cross-sells. A good NRR is above 100%, meaning you're retaining customers and growing their value.
• The 100% club: SaaS businesses that have reached scale should aim for an NRR of over 100%. This indicates strong product-market fit and the ability to generate recurring revenue.
• B2B vs. B2C: Retention benchmarks vary significantly between B2B and B2C SaaS companies. B2B companies typically have higher retention rates due to larger deal sizes and longer sales cycles.

Key insight: Don't just focus on acquiring new customers. Invest in keeping the ones you already have. A high NRR can lead to better growth, higher valuations, and a more capital-efficient business.

Churn benchmarks

Churn is the opposite of retention. It's the rate at which customers leave your service — you want to keep this as low as possible. Let’s look at more insights linked to this benchmark:

• Negative churn: This is the holy grail of SaaS. It means that the revenue you gain from expansion exceeds the revenue you lose from churn. It's signals a truly exceptional product and a loyal customer base.
• The higher the ARPA, the lower the churn: Companies with higher average revenue per account (ARPA) tend to have lower churn rates as they often have more resources to invest in customer success and support.

Key insight: Churn is inevitable, but it can be managed. By understanding your churn rate and its drivers, you can take steps to reduce it quickly. 

Annual recurring revenue (ARR) movement benchmarks

ARR movement benchmarks provide insights into the underlying dynamics of your business. They break down your ARR into its constituent parts: New business, expansion, reactivation, contraction, and churn.

Let’s look at each of these more closely:

• Expansion's growing role: As companies mature, the proportion of ARR gained from expansion tends to increase. This shows the importance of upselling and cross-selling to your existing customers.
• Churn vs. contraction: Churn is the most significant contributor to ARR loss. Contraction (downgrades) becomes more significant as you scale. It's important to monitor both to get a complete picture of your revenue health.

Key insight: By analyzing your ARR movements, you can identify trends and patterns that inform your growth strategies. For example, if you see a high rate of contraction, you might need to adjust your pricing or packaging.

Benefits of tracking SaaS benchmarks

Tracking SaaS industry benchmarks offers advantages that can propel your business forward. Let's explore those key benefits:

• Informed decisions = smarter decisions: You want to know how your metrics stack up against industry standards. This lets you make better decisions about development and marketing. It acts as a roadmap that shows you the most promising paths to growth.
• Efficiency engine: Benchmarks spotlight your operational performance. You can find cost-cut opportunities by comparing your key metrics to industry averages. It's about working smarter, not harder.
• The competitive advantage: In SaaS, every differential edge counts. Benchmarking against top performers lets you see what the best in the business are doing. This means you can find ways to one-up them based on your unique value proposition.

Next steps

By now, you should have a deeper understanding of the importance of SaaS benchmarks. They help to assess your company's performance, inform strategic planning, and attract investors. 

However, it's key to remember that these SaaS industry benchmarks are influenced by various factors. One of the most critical is how effectively SaaS businesses manage their billing. An effective billing process is key for reducing friction and minimizing revenue leakage. 

This is where a comprehensive billing platform like Orb comes in. 

Orb solves billing for SaaS businesses. The goal? Help unlock your full revenue potential.

Orb offers a range of features designed to address the challenges of billing and revenue management. Here’s a quick peek:

• Effortless integration: Orb integrates with your existing data sources, like your data warehouse. This guarantees accurate usage data capture, a crucial input for revenue calculations.
• Customizable usage tracking: Orb allows you to define and track the specific usage metrics that match your business model. The aim is to provide clear insights into customer behavior and revenue drivers.
• Flexible pricing models: Orb enables you to design and implement a wide array of pricing models, from simple to complex. This helps ensure your billing aligns with your pricing strategy.
• Automated billing: Orb automates the entire billing process, including everything from calculation to invoicing and payments. This saves you time and resources while reducing the margin for errors.

Learn how Orb can help you establish a hassle-free consumption-based billing model.