- $0-$60MM+ in revenues ($5MM median)
- 25-250+ employees (50 median)
- 10-2,000+ customers (78 median)
- $100s to $MMs median annual contract value ($20K median)
- Participants from around the world, although primarily U.S.
My thought at this point: move on. The analysis was long, and I didn’t expect to find anything that directly related to my own profile and immediate interests: independents, bootstrapped lifestyle businesses, and so on. Reading the first few paragraphs though, it became clear that businesses in the lowest revenue bracket (less than $2MM annual revenue) were outliers in most respects. The smaller companies experienced higher annual growth (89% median revenue increase vs. mid-30s for alltothers) and captured new revenue more effectively with Internet sales and marketing channels than their larger counterparts. It got me thinking that perhaps these businesses have more in common with micro ISVs than they did with businesses in the higher revenue tiers, and so I kept reading. In the end, I found a few worthwhile nuggets of wisdom and support for things I’d heard anecdotally.
Takeaway #1: It’s better on the bottom.
The report calculated median growth rates for SaaS businesses grouped by their target customers divided into three sizing tiers.
- Very Small Businesses (VSB) - fewer than 20 employees
- Small and Medium Businesses (SMB) - up to 1,000 employees
- Enterprise - more than 1,000 employees
As you can see, companies pursuing customers in the smallest group grew almost twice as fast as those going after bigger clients. After correcting for the influence of the smallest SaaS companies, the effect becomes even more pronounced among the remaining companies.
I found it interesting that the revenue growth rates across all groups dropped by comparable amounts when the smallest SaaS businesses were removed from the calculations. This seems to indicate that the respondents with under $2MM in annual revenues were relatively evenly distributed across the three tiers. I would have expected most of the smallest SaaS companies to be focused on smaller customers.
Takeaway #2: Upsells and renewals win.
It’s hoary old wisdom in the marketing/sales community that it’s 7 times less expensive to acquire new business from an old customer than to acquire a new customer. That sounds suspiciously like a fable to me. What I’ve actually seen, over and over again, is that software companies which make it possible for existing clients to buy more stuff sell more stuff very easily.
That might sound like a fable, but the results of this survey show that it’s not too far from the truth. They show that the median cost to acquire $1 of new revenue is 5-7x lower for upsells and renewals to existing users than for new customers.
It goes on to compare revenue growth across the various sizing tiers, and…
Oops. While some of that result might be differences between smaller businesses billing month-to-month and larger companies selling multi-year contracts, it still says to me that there’s a huge opportunity to earn more through some of the same methods and techniques described in that newsletter - e.g. changes in pricing, offering discounts for long-term renewals, upgrades, bundling, etc. This would seem to apply especially to small SaaS outfits.
(BTW, if this is at all interesting to you and you aren’t already on Patrick McKenzie’s mailing list, do it now. I’ll wait.)
Takeaway #3: Trial users convert.
The study also showed that companies offering free trials of their services converted more users to paid accounts than those offering a free plan. While 75% of freemium businesses were having no luck converting users to paid plans, roughly two-thirds of free trials were producing some revenue and 50% of companies growing substantially as a result of those conversions.
Though it’s probably beyond the scope of the survey, I’d be very curious to see a more detailed breakdown of the “Try Before You Buy” group that isolates the effect of different processes for free trials - for example, requesting a credit card up-front versus at the end of the trial. It would also be interesting to see this in terms of raw number of leads converted to paid plans, especially in light of the upsell opportunities that exist for small businesses.
The report is long, and frankly, there’s a lot of information that just wasn’t particularly relevant to my interests, but hidden in the rocks were a few jewels. Anyone out there who’s intersted in bootstrapping their own SaaS business should have a look at the report and leave a comment with any other things that seem interesting or relevant.