Janelle van Deventer
Janelle van Deventer
Marketing and Community Manager
Posted on
June 28, 2022
·
0
min read

The 5 SaaS performance trends you need to know in 2022

The 5 SaaS performance trends you need to know in 2022

The 2020 - 2021 period proved to be a critical point in the development of the global SaaS industry. As the pandemic forced more businesses to adapt to hybrid working, many embraced the convenience (and cost effectiveness) of cloud-based SaaS solutions, shifting the move towards digitization into high gear. 

At the same time, low interest rates meant more money was pouring into venture capital funds, resulting in record-breaking valuations and funding rounds over the last two years. With the convergence of these two trends, ambitious SaaS founders found themselves remarkably well-positioned for growth. 

But, as they say, all good things must come to an end. Rising interest rates, the war in Ukraine and global supply chain troubles have meant that SaaS founders find themselves facing a very different reality as we head into H2 2022.

Investors have less money to distribute, and will favor only the very best performers. Many of the companies we work with have been reporting more customers requesting flexible payment terms, and are preparing for increased churn rates in the months to come.

Insights to power your SaaS growth

Despite the uncertainty of the near term, at Capchase we believe in the fundamental value of SaaS and its transformative impact on the way we live and work. The future for SaaS is still very bright.  

To help the SaaS community survive 2022, and return to growth in 2023 and beyond, we’ve put together The Capchase SaaS Benchmark Report. 

In it we analyze performance across key metrics for 439 private SaaS companies with $1-15m in Annual Recurring Revenue, identifying what best-in-class and median performance looks like for ARR Growth YoY, Gross Margin, R40, LTV/CAC, Cash Runway, Burn Multiple, Debt/Revenue Ratio and Debt/Equity Ratio.

We compare the performance of private businesses to that of 43 SaaS companies that went public in 2020 and 2021. This will help you identify the performance levels you need to be hitting if you’re planning an IPO in the future. 

All the data in our report is sourced directly from the financial data of real companies rather than surveys. We believe this is the first time data of this breadth and depth has been made available to the SaaS community. We hope that you can use it to accelerate your growth

Comment from Stripe's head of EMEA

Here are the key SaaS performance trends that you need to be aware of in 2022:

1. Forget R40. Successful SaaS businesses are hitting R80 in the early and growth stages.

The Rule of 40 (ARR Growth % + Net Margin %) is a measure of growth versus burn for SaaS companies. 

It can be used to identify sustainable growth for both bootstrapped and venture-backed businesses: VC-backed companies typically have very good ARR growth, but are cash burning, and consequently have negative net margin. Bootstrapped businesses, on the other hand, have positive net margin, but more moderate growth.
To be considered attractive, accepted wisdom is that companies should achieve at least 40% ARR Growth % + Net Margin %—hence “Rule of 40”. However, our analysis shows that top companies achieve at least 80% (R80), skyrocketing to >110% around $5-10m ARR. 

Even once they go public, when ARR growth slows down considerably as companies mature, the best performers achieve 60%.

2. The fastest-growing private SaaS companies are growing at twice the rate of their peers.

Top early and growth stage businesses are achieving ARR Growth between 100% and 160%. That’s more than double median performance, which hovers between 40% and 60% throughout the early and growth stages.

This is a vitally important trend for companies that need to raise capital in the next 6 to 12 months. Realistically, it’s only those companies that can show the strongest growth that will be able to raise venture capital.

If you’re not currently growing at >100%, it’s wise to explore ways that you can improve your ARR Growth and optimize your performance for your next raise before reaching out to investors.

3. Top early and growth stage SaaS companies achieve Gross Margins of at least 80%.

In the current climate, investors are talking about the shift from growth to unit economics. 

Our analysis shows that the top SaaS companies are consistently achieving Gross Margins of 80%+.

Gross Margins are much higher in SaaS compared to other business models, since they usually only include hosting costs and sometimes customer support. They tell you how much cash you have available for operating expenses and new investments.

Investors commonly refer to Gross Margins when evaluating a SaaS company, so it’s another area that requires attention if you need to raise cash in the remainder of 2022.

4. The fastest growing EU companies still lag behind the US.

Europe’s top performers are still not seeing the same growth as their US counterparts. Our analysis shows that past $3m ARR, top US businesses are growing at double the rate of the best European companies.

This trend can be partially explained by the fact that US businesses have a larger initial market that they can go out to. Companies launching in Europe are faced with a more fragmented market, and need to cater to different legislative and cultural norms and needs when looking to grow. 

Another contributing factor could be that as the US SaaS market is more mature than the European market. US founders therefore have a deeper pool of tech talent and know-how that they can draw on.

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5. Diverse teams grow faster.

Our analysis also showed that the fastest growing companies have 10% more women in their senior leadership teams compared to those in the bottom quartile. 

On average, 30% of CEOs and other executives in the fastest growing companies (those in the 75th percentile for ARR Growth % YoY) are female. By comparison, only 20% of CEOs and other executives at companies in the bottom quartile for ARR Growth % YoY were women. 

Get your free copy of The Capchase SaaS Benchmark Report

Download your copy of The Capchase SaaS Benchmark Report, featuring a foreword by Ed Moore, Head of EMEA SaaS Platforms at Stripe, for a deep dive into the above trends and more.

Use it to:

  • Understand what top and median performance looks like at different revenue stages
  • Increase your chances of fundraising by seeing how you compare to your peers 
  • Know what your performance needs to look like if you’re aiming for an IPO

Read the full report.