2014 Pacific Crest SaaS Survey – Part 1

For the third year in a row, we worked together with Pacific Crest Securities, an investment banking firm with a specific focus on SaaS, to survey 306 SaaS companies. This represents nearly double the # of respondents from last year, giving us deeper benchmarking data and insights to share on the growth and operations of the companies in this space.

We also welcome this year the participation of OpenView, an expansion stage venture capital firm specializing in B2B Software, who brought additional support.

I want to extend my personal thanks to the many readers of this blog who participated in the survey. My thanks also go out to David Spitz and his team at Pacific Crest Securities (@dspitz and @PacCrestSec, respectively on Twitter) for their hard work on the survey. Part 1 of the results of the survey, which focuses on growth rates and go-to-market trends, are posted below. Part 2 of the results, which compare application delivery methods, operational costs and gross margins, contract terms, churn rates, capital requirements and accounting methods, can be found in  Part 2 of the SaaS Survey.

If you’d like to participate in this survey the next time around, sign up here so you don’t miss the invite and early access to all the data.

Info about the Survey Participants

A larger, more diverse group of SaaS companies participated this year:

  • $4MM median revenues, but nearly 50 companies with >$25MM and 80 with <$1MM
  • 46 median full-time employees
  • 284 median customers, with 25% having >1K customers
  • $21K median annual contract value (ACV), with 30% below $5K and 20% above $100K
  • Good mix of sales channels including field sales, inside sales and mixed distribution models
  • Participation from around the world, though primarily U.S.

Survey Participant Geography


Survey Participant Revenue Distribution


While the number of respondents nearly doubled from last year’s survey, the overall distribution of participating companies by revenue and size was very similar.

Growth Rates

How Fast Did / Will You Grow GAAP Revenues?


Historical rates for the group were 37% for 2013, while the median projected growth for 2014 is 42%. These rates remain very healthy, but both are lower than the 2013 survey’s results of 41% and 47% for 2012 historical growth and 2013 estimated growth.

How Fast Did / Will You Grow GAAP Revenues? (Excluding companies <$2.5MM in Revenue)


A high concentration of participants with >100% growth comes from the large number of small companies. Excluding companies with <$2.5MM in revenue, we found a more traditional bell curve distribution, with median 2013 growth at 29% and projected growth for 2014 at 33%. These rates were still below last year’s survey results of 32% and 36% for 2012 historical growth and 2013 estimated growth.

Median Growth Rate as a function of Size of Company (Excluding companies <$2.5MM in Revenue)


While less pronounced this year, companies ranging from $5MM – $15MM experienced the highest growth.

Median Growth Rate as a function of Size of Company – Middle Third Group (Excluding companies <$2.5MM in Revenue)


There is a wide range of growth rates across SaaS companies in the survey, especially among smaller companies. This chart shows the ranges among the middle third group (the 33rd-67th percentile), as measured by 2013 GAAP growth.

Median Growth Rate as a function of Contract Size (Excluding companies <$2.5MM in Revenue)


The fastest growers appear to have median average contract sizes between $5K and $100K. Those with median ACVs outside this range are growing about 10 percentage points slower. We’ve consistently seen the $5K-$25K group being among the strongest, but last year we saw more strength in the $1K-$5K group (not seen here) and less strength in the $25K-$100K group than we see here.

Median Growth Rate as a function of Sales Strategy (Excluding companies <$2.5MM in Revenue)


When removing the smallest companies from the distribution, we find growth rates for companies using mainly Internet distribution lagged. Companies with mixed distribution strategies appear to be more agile and reported the highest growth. There was no distinguishable difference between growth rates for field sales vs. inside sales dominated companies. Rates are largely in line with last year’s survey.

Median Growth Rate as a function of Target Customer(1)


Companies focused on enterprise customers experienced somewhat lower growth rates. However, most, if not all, of the difference can be attributed to the fact that these respondents tend to be larger. VSB-focused vendors remain the fastest growers, but their advantage was significantly greater in the 2013. Meanwhile, enterprise-focused vendors have lost ground (from 38% last year to 33% this year).


Primary Mode of Distribution


Field sales remains the most popular way to sell, with 41% of participants employing it as their primary mode of distribution (51% if we exclude companies with <$2.5MM in revenues). Inside sales is 10% points behind at 31% (27% if we exclude the smallest companies). Results were nearly identical to last year.

Primary Mode of Distribution as a Function of Median Initial Contract Size


Over half of the companies with median ACVs below $1K relied primarily on Internet distribution, but once over $1K median ACV, companies shifted heavily towards inside sales. At the $25K ACV breakpoint, companies tended to shift to field sales. These results were largely consistent with prior year results. Given that companies employing a mixed distribution strategy tend to have higher growth rates (shown in the growth section above), it may be worth companies testing additional distribution strategies as their contract size grows to support it.

CAC(1): How Much Do You Spend for $1 of New ACV from a New Customer? (Excluding companies <$2.5MM in Revenue)


Respondents, excluding the smallest companies, spent a median of $1.07 to acquire each dollar of new ACV from a new customer. This drops to $0.90 if we include the companies <$2.5MM in revenues. This result excluding the smallest companies is noticeably higher than the $0.92 and $0.90 we derived in the 2013 and 2012 surveys respectively. (With pressure on growth rates, it’s possible that companies are spending more to stay competitive. In the cost section to come later we see higher sales and marketing spend, particularly for the larger companies whose growth increased.)

Note to regular ForEntrepreneurs readers: the way that CAC is measured in the question above is different to how I normally measure CAC in my other blog posts  e.g. “SaaS Metrics 2.0 –  A Guide to Measuring and Improving What Matters“. In those posts CAC is the average amount that it costs to acquire a single customer. In the question above, CAC is measured as the cost to acquire a dollar of ACV (annualized contract value). This is very similar to my metric: “Months to recover CAC”. i.e. if it costs you a dollar to acquire a dollar of ACV, then it will take you 12 months to recover that CAC. For the median in the graphic above of $1.07 to acquire a dollar of ACV, that means it will take 12 x 1.07 = 12.84 (or about 13 months to recover.)

CAC on New Customers vs Upsells vs Renewals (Excluding companies <$2.5MM in Revenue)


The median CAC per $1 of upsells is $0.18, or about 17% of CAC to acquire each new customer dollar. The CAC for renewals is $0.12, or 11% of CAC to acquire each new customers dollar. The relative costs of upsells and renewals to new customer CAC both decreased slightly from last year.

CAC Spend by Primary Mode of Distribution


As expected, field sales has the most expensive CAC. And, fields sales has widened the gap as its cost has increased, while inside and internet sales have remained relatively flat. Inside sales is now 17% lower than field sales (vs 10% lower last year) and Internet sales is 47% lower (vs 43% lower last year.) Channels sales at $0.53 CAC are at par with online distribution. (For readers interested in digging deeper into how CAC changes as the method of selling goes from touchless Internet sales to inside sales to field sales, you may enjoy this post: “How sales compexity impacts startup viability“.)

What Percentage of New ACV is from Upsells to Existing Customers?


The median respondent gets 14% of new ACV sales from upsells,whereas larger companies rely more heavily on upsells. The $10MM – $15MM and $15MM – $25MM cohorts have a noticeably lower median % of new ACV from upsells compared to the 25% and 22% in the 2013 survey, respectively.

Are the Fastest Growing Companies Relying More on Upsells?


In this chart, we looked within each size category and split each group between the fastest growers and the slowest growers, to see if they had different patterns of reliance on upsells. We found that, beyond $10MM in revenues, the fastest growers tend to have noticeably more reliance on upsells. Last year’s results showed much wider gaps between the bottom and top 50% growers, also with the faster growers relying more on upsells.

Professional Services Impact on Go-to-Market (Excluding Companies <$2.5MM in Revenue)


Professional services play a minor role for most of the group, with the median company booking P.S. revenues equivalent to 13% of first year contract value. P.S. margins are in the low 20%’s. (Note that we excluded companies with <$2.5MM in revenues, as many do not have significant P.S. revenues). These results are relatively similar to previous years, though last year’s median professional services margin was 29%.

Professional Services (% of 1st Year ACV) as a Function of Target Customer (Excluding Companies <$2.5MM in Revenue)


As expected, companies which are focused mainly on enterprise sales have higher levels of services. However, at just 18% of first year ACV, we were surprised the number wasn’t higher. These are consistent with 2013 survey results.

Subscription Gross Margins: “What is your gross profit margin on just subscription/SaaS revenues?”


Median subscription gross margins are 79% for the group (78% when removing the smallest companies from the group), which are very similar to 2013 and 2012 results.

Freemium / “Try Before You Buy”


Approximately 30% of companies derive some amount of new ACV from “freemium” strategies, though it’s very rare that a company drives their business on it. The “Try Before You Buy” strategy is much more common: 60% of companies derive revenues through this strategy, and one-third derive the majority of their new ACV through “Try Before You Buy”. These findings are very consistent with results from previous years.

Sales Commissions


The median reported sales commission rate for the group is 9% of ACV.

Sales Commissions by Sales Strategy


The survey results indicate that median sales commission rates are only slightly higher for Field Sales versus Inside Sales, which is consistent with last year’s results.

Sales Commissions as a Function of Median Contract Size


As seen in previous surveys, there was relatively little correlation between sales commission rates and average contract sizes up to ACV of $250K. “Elephant hunters” selling above $250K report a drop in commission rates. “Elephant hunters” experienced the lowest commission rates in 2014, which was not the case in 2013, but was consistent with results from years prior.

Commissions for Renewals, Upsells and Multi-Year Deals


Not surprisingly, commissions on renewals are typically deeply discounted, with a median rate of 2%. Upsells command a median rate of 7%, although more than half of the companies pay full commissions on upsells. Similar results were found last year. The biggest change is in the analyzing commissions on multi-year deals, found above in the third column. In the 2013 survey, only 24% of respondents paid no additional commissions on the additional years; this year, similar to 2012 results, that number was notably higher at 42%.

Effect of Renewal Commission Rates on Churn (Excluding Companies <$2.5MM in Revenue)


One natural question to ask is whether companies who pay higher commissions on renewals experience lower churn. The answer is a qualified “yes”, at the very high end of renewal commission rates (>9%). However, churn rates among the lowest payers (and companies who don’t pay any commissions at all on renewals), are lower than churn rates for middle-of-the-pack payers.

Median Growth Rate as a Function of Commissions on Renewals (Excluding Companies <$2.5MM in Revenue)


Although it’s difficult to draw too many conclusions from this chart comparing renewal commission rates and growth rates – because of small sample sizes – among the very high end of renewal commission payers it is clear that growth rates actually appear lower.

More to come…

If you are interested SaaS metrics and benchmarking your firm, you may also find the following blog post to be of interest:

SaaS Metrics 2.0 –  A Guide to Measuring and Improving What Matters

Ready for more? See my next blog post for analysis on Part 2 of the SaaS survey, which compares application delivery methods, operational costs and gross margins, contract terms, churn rates, capital requirements and accounting methods. Also if you are interested in participating in the 2015 survey, or just signing up to receive the results, click the button below:

About the Author

David Skok

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  • Fantastic work David, thanks very much. The trend of growing CAC where people spend $1.07 for each $1 in ACV seems worrying to me. I would like to believe there is a new breed of SaaS companies who don’t need to buy their market share, but win on lean organizations and a quality product. That would explain perhaps why the amount drops when you include smaller revenue companies.

  • Jeff Lyons


    Thanks for this great information! I understand why you excluded results from the 118 companies reporting <$2.5MM revenue in many cases, but are there some general observation re: growth rates and ARR revenue multiples that you could make re: this group (especially in the $1-$2.5MM range) that might be helpful to these companies is setting valuation expectations for VC investment and/or acquisition prices? Thanks.

  • Jacco vanderKooij

    David – Thank you, your continued investment in the SaaS business is greatly appreciated. This research is extremely valuable with more and more SaaS businesses launching every day. Today many F500 companies have or are initiating their own “as a Servive” model, and this research is an incredible guideline for them. It shows that like marketing, today sales too can greatly benefit from a data driven approach.

    Some implementation points:
    1) CAC: Your research shows that successful companies for every $1in ACV spend somewhere between $0.90 – $1.07 in CAC. Message to a newby SaaS CEO; this means that if you are aiming a $1,500,000 in ACV you should expect to invest $1,500,000 in marketing & sales. Thus spending $10k on a web-site, a few fresh out of college recruits (SDRs), and $5k on a target list to call prospects with the message “You want to buy from me”, is not going to cut it. You need to approach this like any other GTM; design, implement and execute.

    2) DISTRIBUTION: I notice that my most successful client start with a brand new “centralized internet sales team” at HQ. Companies that “repurpose” their existing field sales force into an “distributed online sales team” appear less successful. I believe this stem from Internet sales teams having to use state of the art online tools, apply new online skills, and develop fresh online content on a daily basis. The online sales team, often sitting in a single room, has to move quickly, and are required to make rapid changes. This happens in days/hours/minutes. A team grouped together seems to pollinate critical knowledge instantaneously, whereas capturing this in an email/video and sending this out may lag or never happens. Do you see the same?

    3) PARTNERSHIPS: Previously corporations struck partners that provided “distribution”, such as a “reseller agreement” (VAR). A VAR provides great coverage in a market, it solved a problem in that it reduced the cost of a sales force. In a SaaS world, these kind of partnerships seem to have become less valuable. Instead I find that today a successful SaaS business has strategic partnerships with companies that provide LEADS (SQLs) in their key markets. Your research tells me this finds it originis in CAC. Do you see the same?

    David, thank you for putting this together, and the companies that participated for shring their data. This means a lot.

  • Matt Nawrocki


    Great thoughts and body of work in your comments. As to the ideas in #3 and partnerships, there are different layers to this. Dependencies include average selling price, geographic coverage, type of product, etc. Agreed that the traditional reseller model is in flux, but there are large SaaS companies (such as BOX) that are successfully investing a lot in this model. If speed to market, reach and revenue are important, a reseller concept (manifested in different ways) provides a means to accomplish this. The #1 market/mindshare vendor in a space enjoys a significantly higher valuation than the #2 player, and getting there quickly is the thesis for this investment. Also, motivation of partners often requires more than just submitting leads, so there is some complexity (and cost) to this, but market reach, revenue and ultimately valuation should be considered.

  • Adam Birnbaum @ StickyAlbums

    Thanks for this information! I just sent it out to a bunch of other folks I know running SaaS startups. Really helpful to be able to benchmark where we are at using this report.

  • AlexLym @ Developex

    Great work as always, thank you for the report!

  • Ash Patel

    I really appreciate the depth of data in this article. Previously, online chatter gave me vague assumptions about commissions to pay and $ spent per $ revenue. The try before you buy approach definitely works for serious B2B SaaS.

  • Sanket Nadhani

    Great stuff David as always. Just sent it out to a whole bunch of people.

    A point that really struck me was channel forms 18% of the distribution for <$1K annual contract sizes – how does that work out? Don't channel partners typically work with deals where they can make at least a couple of thousand dollars in commission itself? What am I missing?

    Also if the numbers for renewals and upsells are beautiful, why do you think companies don't focus on it more to make it a larger part of their overall revenue?

  • Armistead Whitney

    David, thanks again for a great report. It would be interesting to see how much capital on average was raised to date by revenue size.

  • cdevita


    Thanks for this.
    Very valuable info.

    I will be sharing some of this data with my students in my Cloud Computing course at Stanford (CSP BUS 105) which starts next Wednesday evening.

    I was particularly interested in the chart showing the Effect of Renewal Commission Rates on Churn. This makes sense, but I do not think I had seen this correlation before.

  • Hi Sanket, on the channel question, I can only guess at the answer, but I believe the key is as follows: many of the channel players that resell SaaS are not typical resellers. They are instead service providers that sell their own services and augment them with a product. A great example of this is the HubSpot channel. These are marketing firms that are selling their own marketing services, and using HubSpot as a delivery vehicle. The use of HubSpot cements a good recurring revenue stream and augments what they are offering.
    Regarding why companies don’t focus more on renewals and upsells, I think this is an area that is finally starting to get the attention that it deserves. I have written about it here: http://www.forentrepreneurs.com/customer-success/ and here: http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/ , and in particular want to get across to my readers the importance of getting to negative churn. It’s one of the most important elements of running a successful SaaS business.

  • Thanks for letting me know. How many of your students are interested in the business models of SaaS and other Cloud Computing areas that involve recurring revenue? If it is a lot, you might want to take a look at this post: http://www.forentrepreneurs.com/saas-metrics-2/. Let me know if you need any more help.

  • Hi Jacco, thanks for your interesting questions. No response needed to 1) as it is not a question. But replies to 2) and 3) are below:
    2) I very strongly agree with your point. We are in a new sales environment, with a far lower cost of sales, and iterating fast with folks in a central office, using the latest tools and selling techniques, with regularly updated content is key.
    3) In addition to the kind of lead generating partnership that you are seeing, I am also seeing a different kind of partnership emerge in the SaaS world: service providers. These are firms that sell their own services and augment them with a product. A great example of this is the HubSpot channel. These are marketing firms that are selling their own marketing services, and using HubSpot as a delivery vehicle. The use of HubSpot cements a good recurring revenue stream and augments what they are offering. Another good example was in the HR space, where we found that interim CFO firms that were servicing startups would help sell a SaaS HR product as a way to augment/implement their services in a system for the customer.
    As always, thanks for participating in the discussion!

  • Thanks for the feedback Jeff. If I can find the time, I will go back and look at the data to see if I can pull some of that info.

  • Hi David, I am also a huge fan of the new breed of SaaS companies that aims to lower sales costs by producing an exceptional product that does a lot of the selling work. For the most part these companies are newer, apart from the occasional players like Zendesk and HubSpot haven’t gotten to large revenues. As you point out that may explain the results.

  • Sanket Nadhani

    I thought of the service provider angle but then I was wondering if VSBs would really have the budget to get an external service provider? I mean I have seen them cancel $19/month subscription to save money.

  • Using a service provider for accounting, HR, marketing are all money savers for them compared to having to add their own staff in those areas. So I am guessing it’s all a matter of having the right service that has a good ROI.

  • Great research David.

    This research demonstrates sales and marketing investment is core to growth in SaaS companies. Crudely summed up, $CAC = $1AVC. (If this is too simplistic, please shoot me down.)

    But enterprise seed SaaS companies rarely have a salesforce. Rather they rely on founder hustle to get their first wins to prove the product at work. What do VC’s need to see when contemplating a Series-A? Specifically, a SaaS company that would inside/field sales to get the first wins.

  • Typically at Series A we are looking for some strong signs of product/market fit – which means a significant number of paying customers. This usually means that they have moved beyond the stage where the founders are doing all the selling. I hope this helps.

  • Thanks David. It does. Thanks for answering a badly phrased question!

  • Linda Itskovitz

    David: This is great info.
    Two questions:
    1) The $1.07 for fully loaded…are you defining fully loaded as all programs and all people (including costs of benefits et al)?
    2) Any chance you have any stats on the marketing spend (people vs programs) for the companies at different stages of revenue?

  • Jeff Pollock

    David, thanks for this great source of information. I’d like to reiterate the suggestion posted by Jeff Lyons about using a subset of the information you glean to offer insight to principals of companies in the $1-2.5M range. One variant would be to focus on those companies that have raised VC in order to understand best practices for raising capital. In any event, your survey is very helpful… thanks again.

  • Hi Linda, the $1.07 should be the fully loaded costs of Sales and Marketing. Unfortunately we don’t have stats on marketing spend by stage. I would expect that to vary widely by type of product and associated go-to-market. Best, David

  • Thanks Jeff. The survey as is won’t give great information for that. But I am looking into another way of getting to that data.

  • to me it seems affiliates sales <$1K annual contract sizes are also considered as channel sales. In addition to that there are independent sales consultant who add to this channel sales number of 18%

  • Lihi Segal

    Lihi Segal

  • Lihi Segal

    Hi – commission rates are the specific rep % or the total chain including directors, VPs, etc.?

  • The entire chain.

    Best, David

  • This is great information. Thanks for sharing it. Is there anything in the research that benchmarks renewal rates?

  • I found what I was looking for in part 2.

  • Nothing else that I’m aware of. Sorry.