SaaS growth rates and how to calculate them in 2024

The SaaS market is projected to reach $225 billion by 2025 — but it’s no secret that the rules of the game have shifted.

Today's SaaS growth rates are marked by a focus on sustainable growth, customer retention, and using AI to stay ahead of the curve. 

In this dynamic environment, understanding your SaaS growth rate is more crucial than ever. It's the compass that guides your strategic decisions. It helps you make sure your business not only survives but thrives.

In this article, we'll dive into the latest SaaS growth trends. But that won’t be all; here’s a breakdown of the topics we’ll cover: 

• The importance of calculating SaaS growth rates
• A seven-step guide explaining how to calculate your SaaS growth rate
• How pricing models have a direct impact on your SaaS growth rates
• Why a done-for-you billing platform like Orb can help keep your SaaS growth rates high

Let’s start by looking at some interesting SaaS statistics in 2024. 

What are the latest trends in SaaS growth rates?

The SaaS landscape in 2024 is showing a blend of stability and subtle shifts. Overall, we're seeing a stabilization of growth rates after the boom years. 

According to the ChartMogul SaaS Growth Report, year-over-year growth for top-tier SaaS companies has plateaued in recent quarters. It's not a decline, but a recalibration.

However, there are bright spots. The best-performing SaaS startups are actually accelerating their growth, defying the broader trend. New business activity is also picking up, signaling renewed optimism in the market.

Beyond these overarching trends, several key industry developments are shaping SaaS growth rates in 2024:

• The AI revolution: The integration of AI into SaaS solutions is no longer a luxury, but a necessity. SaaS statistics show that a remarkable 92% of business leaders are planning or likely to purchase AI-powered software in 2024. This suggests that SaaS companies leveraging AI effectively could see accelerated growth.
  ‍
• Emphasis on customer success and retention: New customer acquisition is becoming more challenging. SaaS businesses are doubling down on retaining and expanding their existing customer base. This focus on customer lifetime value is crucial for sustainable growth in the current climate.
  ‍
• Rise of vertical SaaS: We're seeing a surge in specialized SaaS solutions catering to specific industries or niches. This trend allows for deeper customer engagement and potentially higher growth rates for those who nail their niche.
  ‍
• The mobile-first imperative: Mobile devices continue to dominate web traffic. Because of this, SaaS companies that focus on mobile optimization are poised for greater user adoption and growth.

On a macro level, the SaaS industry statistics show an upward trajectory. The global SaaS market is projected to reach a staggering $317.55 billion by the end of 2024. This is a significant jump from $273.55 billion in 2023. 

Furthermore, experts predict the market will continue to expand, reaching an estimated $1.23 trillion by 2032, according to Fortune Business Insights.

These trends underscore the dynamic nature of the SaaS industry. It's a space where adaptability is key. And that's where understanding your own growth rate comes in.

Why is calculating SaaS growth rates so important? 

Calculating your SaaS growth rate is about taking the pulse of your business. It's a way to see if you're keeping pace with the market, outperforming your peers, or perhaps needing to adjust your strategies. In an industry as fluid as SaaS, this knowledge is key.

Key SaaS metrics for evaluating growth

Understanding the broader market conditions impacting SaaS growth is crucial. However, to truly gauge the health and trajectory of your own business, you need to dive into the specifics. 

Key SaaS metrics provide a window into your company's performance. They allow you to make informed decisions and course-correct when necessary.

Three critical metrics stand out for evaluating SaaS growth:

1. Churn rate: This is the percentage of users who cancel their subscriptions within a specific period. A high churn rate signals a problem with product-market fit, pricing, or customer satisfaction.

 It is calculated as follows:

Customer churn rate = (Number of customers at the beginning of the period — Number of customers at the end of the period) / Number of customers at the beginning of the period  

2. Customer lifetime value (LTV): LTV is the total revenue you can expect from a single user during its relationship with your company. It is influenced by factors such as average purchase value, purchase frequency, and customer lifespan. 

The formula for LTV is:

Customer lifetime value = (Customer value * Average customer lifespan)

3. Monthly recurring revenue (MRR): This is the predictable monthly revenue you get from subscriptions. MRR serves as a key indicator of your company's financial health and growth potential. 

It is calculated as:

MRR = Number of subscribers under a monthly plan * Average revenue per user (ARPU)

In addition to these core metrics, it's important to track your customer acquisition cost (CAC). This is the average expense incurred to acquire a new customer. By comparing CAC to LTV, you can ensure that your customer acquisition efforts are profitable in the long run.

Balancing short-term growth with long-term profitability

Rapid growth is often the goal for SaaS scaleups. However, it's important to balance short-term gains with long-term sustainability. 

A high churn rate, for instance, might indicate that you're acquiring customers who aren't a good fit for your product or service.

Focus on acquiring high-value customers who are likely to stick around for the long haul. This means paying attention to metrics like LTV and ensuring that your CAC doesn't eat into your potential profits.

Remember, sustainable growth is built on a foundation of solid unit economics and happy customers. By tracking the right metrics and making informed decisions, you can set your SaaS business up for long-term success.

7 steps to calculate your SaaS growth rate

Calculating your SaaS growth rate isn't a one-and-done task. It's an ongoing process that involves careful tracking, analysis, and adaptation. Let's break down the seven essential steps to mastering this vital metric.

Step 1: Gather your essential SaaS metrics

Identifying the key metrics for growth calculations is paramount. MRR, churn rate, and CAC are the cornerstones of your growth analysis.

Finding these metrics within your financial reports can sometimes be tricky. MRR and CAC might be readily available, but the churn rate can be more elusive. 

Look for reports that show customer cancellations or downgrades over a specific period. If you're using a subscription management platform, it might have built-in churn tracking. Remember, consistency is key. Gather data across months and years to get a clear picture of your growth trajectory.

Step 2: Calculate your MRR growth rate

MRR is the heartbeat of your SaaS business, representing the predictable revenue you receive each month. It's a foundational metric for understanding your short-term growth.

To calculate your MRR growth rate, use this formula:

MRR growth rate = ((MRR at the end of the month - MRR at the beginning of the month) / MRR at the beginning of the month) * 100

For example, let's say your MRR at the beginning of January was $10,000, and by the end of the month, it increased to $12,000. 

Your MRR growth rate for January would be:

(($12,000 - $10,000) / $10,000) * 100 = 20%

To benchmark your MRR growth against industry standards, refer to the latest SaaS growth benchmarks. The ChartMogul Report shows SaaS marketing statistics and valuable info about MRR growth rates.

Step 3: Calculate your annual recurring revenue (ARR) growth rate

If MRR is the heartbeat, then ARR is the backbone of your SaaS business. It offers a long-term perspective on your revenue growth.

Calculate your ARR growth rate using this formula:

ARR growth rate = ((ARR at the end of the year - ARR at the beginning of the year) / ARR at the beginning of the year) * 100

For instance, if your ARR at the start of 2023 was $100,000 and grew to $130,000 by the end of the year, your ARR growth rate would be:

(($130,000 - $100,000) / $100,000) * 100 = 30%

Again, benchmark your ARR growth against industry averages to see how you stack up. Several recent studies, like the one from the Pacific Crest SaaS survey, provide benchmarks for ARR growth rates.

Step 4: Adjust for churn to get more accurate growth rates

Churn is the silent killer of SaaS growth. It's the percentage of customers who cancel their subscriptions, and it can greatly impact your overall growth.

The churn rate formula is:

Churn rate = (Number of customers lost during a period / Total number of customers at the start of the period) * 100

To get a more accurate picture of your growth, adjust your MRR and ARR growth rates to account for churn. For example, if your MRR grew by 20% in a month, but you also experienced a 5% churn rate, your actual MRR growth is closer to 15%.

Stay informed about the latest churn rate benchmarks. This helps gauge your performance and identify areas for improvement. 

Step 5: Factor in customer acquisition costs (CAC)

CAC represents the average expense of bringing in a new customer. A high CAC can eat into your profits and limit your growth potential.

You can adjust your growth calculations to account for CAC:

Adjusted growth rate = (MRR growth - CAC per new customer)

To guarantee sustainable growth, aim to reduce your CAC while boosting your customer acquisition rate. This is the most common metric lately, and other various studies offer additional best practices for optimizing CAC and fueling growth.

Step 6: Integrate flexible pricing models to optimize growth rates

Your pricing strategy can significantly influence both MRR and ARR growth. Pricing models, like tiered plans or usage-based pricing, can attract a wider range of customers and encourage upgrades.

Consider how changes to your pricing model might impact your growth calculations. For example, switching from a flat rate to a tiered pricing structure could lead to increased MRR and ARR over time.

Explore recent case studies on Orb’s pricing strategies to discover effective ways to optimize your SaaS growth rates.

Step 7: Monitor real-time metrics to stay on top of growth rates

Use tools and platforms that offer continuous tracking of key metrics. This will enable you to identify trends, spot potential problems early on, and make agile decisions to keep your growth on track.

Consider tools like Orb's billing platform to gain real-time insights into your SaaS growth rates.

Role of pricing models in SaaS growth

Flexible pricing models help SaaS companies adapt to new challenges and opportunities. This, of course, fosters sustainable growth and customer satisfaction. Let’s explore the role of pricing models in SaaS growth rates:

Adapting to growth challenges with flexible pricing

Traditional flat-rate pricing models can be limiting in a dynamic market. Usage-based billing or tiered pricing, allows SaaS companies to cater to a wider range of customer needs and budgets. 

This adaptability is key to attracting new customers. It also helps in driving expansion revenue from existing ones.

Usage-based billing and tiered pricing and its impact on growth and retention

Usage-based billing aligns costs with consumption. It helps make your product more appealing to budget-conscious customers. It also encourages them to scale their usage over time. 

Tiered pricing offers different feature sets and price points. The great thing is it allows customers to choose the plan that best suits their needs and upgrade as they grow. Both models promote customer retention by offering value and flexibility.

Adjusting pricing to stay competitive

The SaaS market is fiercely competitive. evaluating and adjusting your pricing strategy is crucial to remain attractive to customers. It also helps in keeping healthy growth rates. 

This could involve offering discounts, introducing new pricing tiers, or experimenting with different billing frequencies.

The importance of flexible billing platforms

A billing platform like Orb is essential for supporting your pricing strategy and building growth momentum. 

These platforms enable you to easily implement and manage complex pricing models. You can also automate billing processes, and gain insights into customer usage and revenue trends in real-time.

Scalable and sustainable growth

The right pricing model, supported by a robust billing platform, can pave the way for scalable and sustainable growth. 

By aligning your pricing with customer value and providing a top-notch billing experience, you can foster long-term customer relationships. Most importantly, it can help you unlock your company's full growth potential.

Next steps: How Orb empowers your SaaS growth journey

Throughout this guide, we've explored the critical importance of SaaS growth rates and the various ways to calculate them. We've also highlighted the influence of factors like churn rate, customer acquisition cost, and pricing models on your growth trajectory.

However, tracking usage, building flexible pricing structures, and ensuring accurate billing can strain even the most capable in-house systems. 

This is where Orb steps in as a must-have tool.

Orb is a done-for-you billing platform designed specifically for growing SaaS companies. We simplify the complexities of billing, freeing you to focus on what matters most: building a thriving business.

Here's how Orb supports your growth:

• Precise usage tracking: Orb's robust infrastructure captures a wide array of usage metrics. These include those specific to SaaS. Think of metrics like feature usage, user activity, or any custom metric that reflects the value your product delivers.
  ‍
• Adaptable pricing structures: Orb allows you to create and manage diverse pricing models with ease. Use tiered pricing, volume discounts, or any other structure that aligns with your growth strategy.
  ‍
• Transparent billing and reporting: Generate clear, customer-friendly invoices that detail usage and charges. Orb's real-time reporting provides actionable insights into revenue trends. This allows you to make much better data-driven decisions.
  ‍
• Seamless and direct integrations: Connect Orb with your existing tools. Our integrations include payment gateways, CRM systems, and accounting software. This eliminates detached data silos and simplifies your financial operations.

Ready to take control of your SaaS billing and unlock your growth potential? Discover how Orb can help you achieve scalable, sustainable growth. Check out our free demo and test out Orb yourself.