I spotted a study on SaaS retention put out by ChartMogul.
More than half of SaaS businesses had lower retention in 2022 compared to 2021. A challenging macroeconomic environment meant subscribers reassessed and cut their SaaS spend. This is in sharp contrast to 2021, which saw almost 70% of businesses having a higher retention rate in 2021 compared to 2020.
In the pre-product-market-fit stage of the business, net retention is usually poor. As startups grow and find product-market fit, net retention improves. Finally, as companies reach scale and become category leaders, net retention often exceeds 100%.
When benchmarking, always keep the stage of your business in mind. Companies with ARR in the range of $1 million-$3 million have a top quartile net retention rate of 94%. Those in the $3 million-$15 million ARR segment have a top quartile net retention rate of 99%. Businesses at scale with ARR in the range of $15 million-$30 million have a top quartile net retention rate of over 105%.
And, let’s layer on a bit of SaaS and software spend data from a report by Zylo. Enterprises with over 10,000 employees add an average of 12 new SaaS applications every 30 days; the report shows that more than half of SaaS purchases are not correctly categorized as software within expense platforms and other financial systems.
While only 6% of application spend is on shadow IT, the category accounts for 37% of total application quantity, according to the report.
For service organizations, deploying SaaS helps with retention, which is an easy takeaway. More importantly, there’s some extrapolation that can be done here to understand the curve to expect. Services can follow a similar pattern, with larger organizations achieving more retention due to experience.
I also wanted to note that as much as Shadow IT gets attention, it’s intriguing to see fewer dollars spent and more volume. So many tools account for smaller spend.