RESEARCH BRIEF 26: RETENTION

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In Q1 of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 11th annual survey, with more than 1,500
private B2B SaaS companies responding, making it the largest survey of its kind. Below are our findings on retention.

2022 B2B SAAS RETENTION BENCHMARKS

As we have noted for several years, revenue retention
is one of the most important metrics for ensuring Figure 1

medium- to long-term business health due to its Median Net and Gross Revenue Retention by ACV
compounding effect on growth. 110%
106% 106%
105% 105%
The relationship of new sale bookings to revenue 105%
Median Retention

101%
100%
retention is the SaaS version of “offense wins games, 100%
defense wins championships.” Below is our most © 2022 - SaaS Capital 95% 95%
95%
92% 92% 92%
recent survey data cross-referenced against other 90%
90%
important figures like growth rate, funding, and scale.
Definitions and formulas for key terms are at the end 85%
of the report. Less than $12k to $25k to $50k to $100k to More than
$12k $25k $50k $100k $250k $250k
Retention by Annual Contract Value ACV

Median Net Revenue Retention Median Gross Revenue Retention

Figure 1 shows median net revenue retention (NRR)
and median gross revenue retention (GRR) across a Excludes Companies with less than $1M ARR

range of annual contract values (ACVs). For retention,

benchmarking by ACV is the best starting point. More than by company age, revenue level, or industry, companies that share a
similar selling price have the most in common. They will be organized similarly, go to market similarly, and support customers
similarly. The opposite is true of two companies selling a $19.99/month product versus a $250,000/year product.

Companies with ACVs above $25,000 show median net revenue

retention of ~105%, while companies below $25,000 show “For retention, benchmarking by
~100% median net revenue retention.

Historically, annual surveys have shown that higher gross

ACV is the best starting point. More
retention levels were directly correlated with higher ACVs and than by company age, revenue
that relationship holds true again this year. This relationship
makes intuitive sense. level, or industry, companies that
Higher-priced solutions more often involve a longer sales cycle,
in-depth scoping and implementation, and dedicated support
share a similar selling price have the
and account management, all of which yields a stickier product. most in common.”

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Net Revenue Quartiles Figure 2

Net Revenue Retention by Quartile by ACV
Digging deeper into the net revenue benchmarks,
125% 120%
Figure 2 shows NRR broken into quartiles for the same 120% 117% 116%

Net Revenue Retention

ACV categories. As noted above, companies with ACVs 115% 110% 111% 112%

above $25,000 show median net revenue retention 110%

105% 105% 106% 106% 105%
of approximately 105%. However, as the chart shows, 101% © 2022 - SaaS Capital
100% 100%
even the 25th percentile for these companies report 95% 100% 99% 100%
98%
NRR of 98% to 100%. Top-quartile companies with 90% 93%
95%

ACVs north of $50,000 report NRR greater than 115%. 85%

Less than $12k to $25k $25k to $50k $50k to $100k to More than
Retention and Growth Rate $12k $100k $250k $250k
ACV
Generally speaking, higher growth is associated with
25th Percentile 50th Percentile 75th Percentile
higher retention and vice versa. This is the “leaky
bucket” metaphor. The higher your retention, the Excludes Companies with less than $1M ARR

easier it is to grow that much faster because you don’t

have to first refill the bucket before adding to it. The impact of
retention is also cumulative as it repeats and expands on itself year “The growth rates for groups
after year. The opposite is also true.
of companies with NRR of at
There is a strong and exponential correlation between net revenue
retention and growth. The correlation between growth and NRR is least 110% was higher than the
intuitive, as net retention includes what are essentially new “sales”
in the form of price increases, upgrades, upsells, and cross-sells,
population median, and the
all of which help grow revenue year-over-year. The cumulative
compounding nature of NRR is clearly evident in the chart.
growth rate for companies with
Across the entire survey sample of companies with more than $1 NRR below 110% was lower than
million in annual recurring revenue (ARR)1, the median growth rate
was 40%. The growth rates for groups of companies with NRR of at
the population median.”
least 110% was higher than the population median, and the growth
rate for companies with NRR below 110% was lower
Figure 3
than the population median.
Growth Rate by Median Net Revenue Retention
Figure 3 shows that increasing NRR from 90 or 100% 90% 84%
to 110% improves growth rate by 5%, increasing 80%
NRR from 110% to 120% improves growth by 7%, 70%
Median Growth Rate

increasing NRR another 10% improves growth by 60%

© 2022 - SaaS Capital 54%

13% and another 10+% improves growth by another 50% 41%

40% 34%
30%! This is a rare example of increasing returns from 29% 27%
30%
investment in upsells and cross-sells.
20%
The relationship between gross revenue retention 10%
0%
and growth is not as direct and is more binary. There Below 90% to 100% to 110% to 120% to Above
is no correlation between GRR and growth rate for 90% 100% 110% 120% 130% 130%
companies with gross retention of at least 80%. Said Net Revenue Retention
another way, companies with 80% to 100% GRR all Excludes Companies with less than $1M ARR
report median growth of around 40%, the same as
the total sample of companies. But companies with gross retention below 80% reported growth below the population median of
40%.

1
We frequently exclude data from companies with less than $1 mill in ARR because of the small revenue www.saas-capital.com
denominator in growth rate calculations.
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Retention for Horizontal vs. Vertical Solutions Figure 4

Looking at whether a company sells a vertically focused product (e.g.,
Retention by Vertical vs. Horizontal
dental office management software) versus a horizontal product
105% 103% 103%
(e.g., new hire applicant tracking) reveals a new development. In our

Median Retention
previous year’s survey, during the pandemic, we saw that vertically 100%
focused companies reported better retention than horizontally 95% 93%
91%
focused companies. The difference there has flattened out. Figure
90%
4 shows median net revenue retention is the same for both groups © 2022 - SaaS Capital
while vertically focused companies show slightly higher median gross 85%
Net Revenue Gross Revenue
retention.
Retention Retention
Retention in VC-Backed vs. Bootstrapped Companies Horizontal Vertical
The dynamic between bootstrapped companies and equity-backed
Excludes Companies with less than $1M ARR
companies continues to evolve. Historically we had seen that equity-
backed companies showed markedly higher net and gross retention. Figure 5
Last year’s survey showed bootstrapped companies had erased the Retention by Funding Type
disparity in median net revenue retention and reported higher median
gross retention than equity-backed companies for the first time. 110% 105%
102%

Median Retention
Figure 5 shows equity-backed companies are again reporting slightly 100%
93%
91%
higher NRR while bootstrapped companies continue to show slightly
90%
higher GRR. © 2022 - SaaS Capital
80%
The erosion of the previous pattern of equity-backed companies
Net Revenue Gross Revenue
reporting notably higher NRR and GRR suggests that best practices Retention Retention
in “customer success” are now fully disseminated throughout the
SaaS industry, whereas previously it was a niche concept advocated Bootstrapped Equity-Backed
by experienced executives-turned-venture capitalists advising their Excludes Companies with less than $1M ARR
portfolio companies or only seen as a nice-to-have employed by
externally funded companies and not worth bootstrapped companies
allocating money towards. Whatever the reason, CS is now clearly a SaaS
best practice.
Figure 6
Retention by Company Age Retention by Company Age
For the most part, company age isn’t a factor in 110% 107%
105%
retention, especially net retention. However, there is 105% 103%
Median Retention

102% 102% 102% 102%

an important exception related to gross retention. A
100%
point we have made in the past is that younger SaaS
© 2022 - SaaS Capital
companies tend to show inflated gross retention 95% 93%
92% 92% 92%
93%
90% 90%
numbers because their customers haven’t yet had a 90%
chance to churn. 85%
Less than 3 to 5 6 to 8 9 to 11 12 to 14 15 to 17 Over 17
Figure 6 illustrates this point. Companies less than 3 3 Years Years Years Years Years Years Years
years old report median gross retention of 93%. After Company Age
3 years, when companies enter their “scale-up” and
Net Revenue Retention Gross Revenue Retention
growth phases, retention slips and eventually stabilizes
around 90%. Then in years 11 and on, GRR increases Excludes Companies with less than $1M ARR

again, as the product and customer base solidifies. It is

important for management teams and boards to understand this retention “lifecycle” as SaaS companies scale.

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Retention by ARR Figure 7

Following the point about company age, another Median Net and Gross Revenue Retention by ARR
way to measure maturity is by the size of a company. 110%
© 2022 - SaaS Capital 105%
106%
Figure 7 shows both median net revenue retention 105% 102% 102% 102%

Median Retention
and median gross retention by ARR. 99%
100%
Gross revenue retention by ARR echoes the data in 95% 92%
Figure 6. We know from other analysis that it typically 90%
91%
90%
91% 91%
90%
takes a company on average six years to reach $1
million in ARR, so the curve here is consistent with 85%
Less than $1 $1 - $3 Million $3 - $5 Million $5 - $10 $10 - $20 More than $20
companies having slightly overstated GRR until year Million Million Million Million
five or six and ARR of $3 to $5 million, before entering ARR

their scale phase in years five through ten, and ARR

Median Net Revenue Retention Median Gross Revenue Retention
levels of $5 million to $10 million, before retention
again improves.

Note that in both Figure 6 and Figure 7 the differences between

each cohort are slight, but we have seen a similar shape to the
data for numerous years.

The positively correlated relationship between median net “The positively correlated
revenue retention and ARR is one we have previously not
seen in our annual surveys. Historically, net revenue retention
relationship between median net
was largely the same across all company sizes. We now see an
emerging pattern of NRR increasing as companies scale.
revenue retention and ARR is one
A possible explanation of this could be the convergence of two we have previously not seen in our
points noted above. First, net retention has a strong, cumulative,
and compounding impact on growth year-on-year-on-year.
annual surveys. Historically, net
Second, data elsewhere in this analysis indicates companies are revenue retention was largely the
now fully embracing customer success as a table stakes SaaS
strategy, with positive results. same across all company sizes.”
Retention by Contracting Length
A frequently asked question is whether contract length (annual
and multi-year versus monthly) impacts retention.
It makes intuitive sense that longer-term contracts Figure 8
would reduce churn, but the data is mixed. Retention by Contract Length
© 2022 - SaaS Capital
Figure 8 shows companies that primarily use annual 105.0% 102.0% 102.0%
101.5%
and multi-year contracts show net revenue retention 100.0%
Median Retention

that is essentially the same (~102%) as those offering 95.0%

95.0%

month-to-month terms. The data on gross retention 90.0%

90.0% 88.5%
does seem to support the idea that long-term
contracts are conducive to reducing gross churn. 85.0%

There may be some COVID impact (more customers 80.0%

No contracts or month-to- Annual Multi-year
breaking and canceling contracts) to these numbers month
as this point had been more conclusive in prior-year Primary Initial Contract Length
surveys. Net Revenue Retention Gross Revenue Retention

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Conclusions and Takeaways

• Across all SaaS companies, median net retention “Growth rate is positively and
is 102%, which is up from the prior year’s reading
of 99%. Meanwhile, median gross retention is 91% exponentially correlated with net
compared to the previous year’s survey reading of
92%. revenue retention, while gross
• Higher-ACV products show higher net and gross revenue retention is a “table stakes”
retention. For companies with ACVs below $100k, 92%
gross retention is the norm. Higher ACV companies benchmark – to have a shot at
should benchmark to 95%.
performance parity with your peers,
• Companies with ACVs of $25k or higher report median
net retention of ~105%. GRR must be at least 80%.”
• Gross retention during the first 3 to 5 years of a
company’s life may be artificially elevated until
customers have had enough time to churn. GRR by ARR corroborates this point, and, while the changes are slight, GRR
declines as companies reach $3 million of ARR, then increases as the companies scale.

• Growth rate is positively and exponentially correlated with net revenue retention, while gross revenue retention is a
“table stakes” benchmark – to have a shot at performance parity with your peers, GRR must be at least 80%. Above 80%
there is no correlation, but GRR and growth are correlated for gross retention below 80% (the upshot there is that if your
GRR is below 80%, the data suggest that growth rate will increase ratable with any increase in GRR up to 80%).

• While the median NRR is 102% across the entire survey, the benchmark to target for median growth rate of 40% is NRR of
at least 110%.

• Bootstrapped companies report slightly higher gross retention than equity-backed companies while equity-backed
companies report higher net revenue retention. Historically VC-backed companies have had higher retention across
both metrics.

• Vertically focused companies reported slightly better median gross retention than horizontally focused companies. Net
revenue retention was the same for both groups.

• Contracting length does not appear to impact net revenue retention but does show a relationship with gross retention.

Retention Definitions and Formulas

We asked companies to report their net and gross annual revenue retention data. Customer account retention may be a useful
metric for you to track, but our focus in the survey, and generally the retention metric we think the most important, is based on
dollars of revenue. We define net retention as:

(Monthly Recurring Revenue in December of 2021 only from customers who were customers in December 2020)
÷
(Total MRR in December 2020)

This number can be anything from 0% to well above 100%, as it includes upsells, new product cross-sells, and price increases.
Annual gross retention is the same formula, excluding the upsells, cross-sells, and price increases. (For easy calculation, set each
customer’s 2020 MRR to be less than or equal to their 2020 MRR.) For this reason, gross retention cannot exceed 100%.

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About SaaS Capital

SaaS Capital is the leading provider of growth debt designed explicitly for B2B SaaS companies. SaaS Capital’s growth debt is
structured to provide a significant source of committed funding, deployment flexibility, and lower overall cost of capital, all while
avoiding the loss of control and dilution associated with selling equity. SaaS Capital was the first to offer lending alternatives to SaaS
businesses based on their future recurring revenue. Since 2007, SaaS Capital has deployed $234 million in growth debt to deliver
better outcomes for 70+ clients, resulting in $983 million in total enterprise value created.

Benefits of SaaS Capital’s unique, SaaS-focused approach:

• Higher advance rates - Capital availability is based on a multiple of your
monthly recurring revenue (MRR) – typically 4x to 7x MRR
• Capital availability that grows with your business - The amount of
capital that you can draw increases automatically as your revenue grows
• Long-term source of capital - The capital is drawn down over 2 years
under the committed line of credit, and then either renewed, or repaid
over the following 3 to 4 years
• Efficient use of capital - Capital is drawn down only as your business
needs it, thereby reducing your interest expense
• Flexibility - No balance sheet covenants or cash reserve requirements

SaaS Capital is best able to assist companies with the following

attributes:
• Sell a SaaS-based solution
• Seeking $2M to $20M in growth capital
• $250,000, or above, in MRR
• Have a minimum of 85% retention
• Registered and principally banked in the U.S., Canada, or UK
• Revenue growth above 15% per year

Your business does NOT need to be:

• Venture Backed
• Profitable
• Billing your customers monthly

Visit www.saas-capital.com to learn more.

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