You are currently viewing SaaS Benchmarks: Revenue Growth

SaaS Benchmarks: Revenue Growth

  • Post category:SaaS
This is one of a series of articles on some of the most common SaaS benchmarks, providing global data including sources from the UK and the USA. This article’s focus is on revenue growth.

What is revenue growth rate?

Revenue growth rate is the increase in sales month on month or year on year. Expressed as a percentage, it is one of the best indicators of how fast your business is growing.

Why is revenue growth so important?

This measure of revenue increase is super important to investors. Investors, particularly California VCs, have tracked SaaS revenue growth rates for years.  In doing so, they have determined that for a company to successfully IPO, they need $100M ARR with a growth rate of 25% or more.
 
Working backwards, and using data from their own companies, they determined best in class growth rates. 
 
The conclusion: The rate of revenue increase falls as companies get larger, with the relationship best represented through a logarithmic scale.

How do you calculate revenue growth rate?

Best practice is to consider only recurring sales – particularly for SaaS companies – with MRR (monthly recurring revenue) being the most common metric used. 
 
The ScaleXP automated metrics feature calculates revenue growth rate for you automatically, specifically considering the types of revenue that are recurring – but in case you need to calculate the number yourself, the MRR revenue growth formula is a simple:
This provides the growth rate as a percentage.
 
Another very common metric is ARR growth rate, which annualises monthly recurring revenue to produce an annual growth rate.  
 
ScaleXP also automatically calculates ARR Growth for you, using annualised MRR – making calculating revenue growth super simple and quick.
 
For more mature companies and for forecasts far into the future, investors sometimes talk about Revenue CAGR – or the compound annual growth rate of sales – which is the average rate of growth over a period of a number of years.   
 
The calculation for Revenue CAGR is:

So what are the Revenue Growth Rate benchmarks?

The Gold Standard Benchmark

The gold standard benchmark for measuring SaaS growth is the Mendoza line, which plots growth rate compared to size. The concept of the line, as well as the original concept was created by 

Scale Venture Partners, a California VC and early investors in Box, DocuSign, and many other large enterprise SaaS companies.

As you look at the line, it’s worth taking a moment to assess where your business sits. In plotting your data, please keep in mind that vertical axis represents the forward growth rate, or the rate you expect to achieve over the coming 12 months.
 
For most European companies, the idea of IPO-ing on the Nasdaq is not realistic. The LSE or DAX will do just fine – 😊, which leads nicely to the second set of benchmarks.

A Global View

Openview provides a more global set of benchmarks.  Their data is collected by an international set of VCs, including one based in the UK and several based in Europe, so the data presents an international view.  Growth rates increased overall in 2021, reflecting recovery from the impact of the pandemic.
 
Even at a glance, the differences are even more apparent.

UK or European specific benchmarks?

Sadly, there are very few robust SAAS benchmarking studies in the UK. Serena did conduct a
European wide study of 108 companies (only!) with the following findings:

Conclusion

Growth rates will naturally fall as companies reach greater absolute values in sales, but rapid growth rates remain a key factor for successful SaaS companies.
 
The lack of wider data specific to UK companies is lamentable and certainly something that we (all!) should work to address. 
 
In the meantime, please share this article with your friends and colleagues; anyone who may find it useful.  
 
You can see the other articles in our benchmarking series here.  If you would like us to cover any other SaaS benchmarks, drop us a note.  We would love to understand what you would find most useful (admin@scalexp.com).