2017 Private SaaS Company Survey – Part 2

We recently released Part 1 results of our private SaaS company survey in partnership with KBCM Technology Group (formerly Pacific Crest Securities). This is the sixth annual survey we’ve produced together, which provides data to help SaaS companies benchmark their performance against their competition.

In Part 1, we covered growth rates, go-to-market trends, operational aspects, and cost structure.

We’re excited to share Part 2 of the survey results, which covers:

  1. Contracting & pricing
  2. Retention & churn
  3. Capital requirements
  4. Accounting policies

We’ve also released the forEntrepreneurs 2017 SaaS Infographic which highlights major takeaways from the survey, presented in a visual format.

To participate in or receive results from the next SaaS survey, sign up now:

Contracting and Pricing

Median / Typical Contract Terms For the Group

The median average contract length is 1.4 years, and the median billing term is ten months in advance. There is no significant change in contract durations compared to previous surveys. There is somewhat better billing terms (10 months in advance vs. 7 months in last year’s data).

Contract Length as a Function of Contract Size

The phenomenon of longer contract terms for larger contracts is pretty clear, with the exception of a few outliers. These results are largely similar to previous years.

What is Your Primary Pricing Metric?

Retention and Churn

Annual Unit Churn

(Excluding companies <$5MM in 2016 Ending ARR)

Median annual unit churn increased slightly by 1% from 10% to 11% compared to last year.

Annual Gross Dollar Churn

(Excluding companies <$5MM in 2016 Ending ARR)

This year’s results are comparable to past survey results: 8% in 2016, 7% in 2015 and 6% in 2014.

Gross Dollar Churn & Capital Efficiency

(Size growth scatter view of companies >$10MM in 2016 Ending ARR)

Annual Gross Dollar Churn as a Function of Contract Length

(Excluding companies <$5MM in 2016 Ending ARR)

Unsurprisingly, companies with longer contracts generally experience lower gross dollar churn.

Annual Non-renewal Rates vs. Gross Dollar Churn

(Excluding companies <$5MM in 2016 Ending ARR)

We’ve broken out ‘non-renewal rates’ from gross dollar churn, and determined that some of the resulting improved churn rates – but not all – is explained by longer contract duration.

Annual Gross Dollar Churn as a Function of Upfront Professional Services

(Excluding companies <$5MM in 2016 Ending ARR)

Respondents with higher levels of professional services reported lower churn and lower non-renewal rates.

Annual Gross Dollar Churn as a Function of Median Contract Size

(Excluding companies <$5MM in 2016 Ending ARR)

As contract sizes increase, gross dollar churn consistently trends downwards (presumably related to longer contract terms). In comparison with previous surveys, the trend is similar to last year. However, this year we see less differentiation by ACV.

Annual Gross Dollar Churn as a Function of Primary Distribution Mode

(Excluding companies <$5MM in 2016 Ending ARR)

Those companies employing primarily Field sales had lower gross dollar churn rates than those employing primarily Inside sales, Internet sales, or Mixed distribution.

Annual Net Dollar Retention From Existing Customers

“How much do you expect your ACV from existing customers to change, including the effect of both churn and upsells / expansions?”

The median annual net dollar retention rate, including churn and the benefit of upsells and expansions, is 101%. The result does not change materially when removing the smallest companies (<$5MM in ARR) from the group. 2017 results are largely consistent with past surveys: 2016- 102%, 2015- 104%, and 2014- 103%.

Capital Requirements

Capital Efficiency

Capital Consumption Ratio

(Excluding companies <$5MM in 2016 Ending ARR)

Use of Debt Capital Among Private SaaS Companies

Accounting Policies

Subscription Revenue Recognition Policies

(Excluding companies <$5MM in 2016 GAAP revenue)

“When do you typically begin recognizing subscription revenues on a new contract with a new customer?”

Approximately 49% of the respondents indicated that they begin recognition very soon (within a week or two) after signing new contracts.

Professional Services Revenue Recognition Policies

“What is the predominant mode for recognizing professional services revenues?”

The clear majority of respondents offering professional services indicated they recognize that revenue as the services are provided.

Sales Commission Cost Recognition Policies

(Excluding companies <$5MM in 2016 GAAP revenue)

“How do you recognize sales commission costs (deferred or recognized upfront)?”

We also inquired as to the recognition of sales commission costs. We found ~3/4 of respondents indicating they recognize commission costs upfront.

Accounting Policies Across Selected Accounting Firms

(Excluding companies <$5MM in 2016 GAAP revenue)

We’d love to hear your comments below about this year’s survey results.

You may also be interested in the forEntrepreneurs SaaS Survey Infographic for highlights from this year’s results presented in a visual format.

For benchmarks and insights on growth trends, go-to-market strategy operational aspects, and cost structure, see Part 1 of the survey results.

About the Author

David Skok

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  • Shane Hubbell

    Does the “Use of Debt Capital Among Private SaaS Companies” include convertible debt?

  • Yes

  • Shane Hubbell

    Thanks!

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  • Ray Miller

    Hi David, one question I have is regarding Average Contract Value. I see that you have it listed on this report.

    Do you believe that contract value by overall revenue has any significance? I.e. as you move from a 1-10 million dollar company to a 100-250 Million dollar company should ACV rise? If so do you have any numbers to share on ACV as overall revenue rises? I’m looking to benchmark my company’s ACV compared to industry peers in terms of revenue

  • Hi Ray, there is no correlation between the two, and no need for ACV to rise as your revenues rise. A good example of a large company with low ACV would be HubSpot.
    Best, David

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