Retention isn’t the silver bullet Bullet, but SaaS is the closest thing.
A high retention rate indicates a strong product-market match. It shows that you are solving real problems and adding value for your customers.
High retention means better growth. Companies with the highest retention rates grow at least 1.5x-3x quicker.
Finaly, high retention leads to a more capital efficient business. In SaaS, the most expensive part of your business is acquiring customers. Even when you scale your business, sales and advertising expenses are the biggest part of your budget. If you can’t retain these hard-to-get clients, your business will be less efficient and more expensive to scale.
This is why it’s not surprising that companies with higher net revenues retain higher valuations.
How can companies determine if they are meeting their retention goals? With the recent market downturn is retention lower?
There’s no better answer than looking at real data. ChartMogul is a charting software that helps you to create charts. studied more than 2,100 SaaS businesses We are bringing retention benchmarks and trends into the SaaS Community. Here are the key takeaways.
Retention in 2022 will be harder than ever
In 2022, more than half of SaaS companies had lower retention compared to the year 2021. A challenging macroeconomic climate meant that subscribers reassessed their SaaS spending and reduced it. This is a stark contrast to 2021 where almost 70% of businesses had a higher retention rate compared to 2020.
Percentage companies with higher net revenue retention than the previous year.
This trend is not exclusive to SaaS startup companies. Snowflake and other SaaS behemoths also saw their retention fall from its highs in 2021.
SaaS businesses with an annual revenue of more than $3m should target a retention rate net of 100%.
What is a good rate of net retention depends on your business’s stage.
In the pre-product-market-fit stage of the business, net retention is usually poor. Net retention improves as startups grow, and find their product-market fit. Net retention can often exceed 100% as companies scale up and become category leaders.
Always keep your business stage in mind when benchmarking. Businesses with ARRs between $1 million and $ 3 million have an average net retention rate of 94%. The top quartile of net retention is 99% for businesses with ARR between $3 million and $15 million. Businesses with ARR between $15 million and $30 million have a net retention rate in the top quartile of over 105%.
Net revenue retention (%) by range of ARR Image Credits ChartMogul
A net retention rate less than 100% indicates that your ARR is decaying, meaning that you have less revenue today than you did a year ago. A net retention of over 100% indicates a good product-market fit, and demonstrates your ability to increase your revenue by retaining your existing customers.
In the higher ARR ranges there are more businesses that have a retention rate net of over 100%. Over 35% of SaaS companies with ARRs between $15 million and $30 million have a net rate of over 100%.