How to Track and Calculate Your SaaS Company’s Growth Rate

Tracking and understanding your SaaS company’s growth rate is crucial for making strategic business decisions and determining the overall health and trajectory of your business. Your SaaS growth rate can indicate whether your company is growing sustainably, stagnating, or even contracting over time.

In this comprehensive guide, we’ll explain what SaaS growth rate is, why it matters, how to calculate it, and how to use it to set goals and benchmark your performance

What is SaaS Growth Rate?

A SaaS company’s growth rate refers to the percentage increase or decrease in recurring monthly revenue (MRR) over a set period of time, usually annually. It shows how quickly or slowly a SaaS business is acquiring new customers and expanding within existing customers.

For example, if a SaaS company started the year with $100,000 in MRR and ended the year with $150,000 in MRR, their annual growth rate would be 50%. The higher the growth rate percentage, the faster the company is growing.

Tracking SaaS growth allows you to

• Gauge the overall health and trajectory of your SaaS business
• Spot trends and changes in growth over time
• Forecast future revenue
• Set goals for sustainable, high growth
• Benchmark your performance against competitors and industry standards
• Communicate growth and progress to stakeholders
• Make strategic decisions about where to invest resources

In short, your SaaS growth rate gives you an objective way to evaluate the momentum and direction of your business.

Why Is Tracking SaaS Growth Rate Important?

For SaaS companies, growth equals survival. Your growth rate impacts everything from your valuation to your ability to raise funding and attract talent. Rapid, high growth is usually a sign of product-market fit and effective execution.

Here are some key reasons why tracking your SaaS growth rate matters:

• Raising venture capital investment – VC investors want to see rapid growth and market potential. High growth rates signal opportunity and traction.

• Increasing company valuation – High growth translates into higher valuations. Growth signals you’re acquiring customers efficiently and expanding within accounts.

• Mapping progress over time – Consistent growth tracking lets you set targets and benchmark against past performance. You can spot changes and react appropriately.

• Sustainable scaling – Rapid unsustainable growth can destroy rather than grow companies long-term. Tracking growth helps ensure it’s paced appropriately.

• Planning and goal setting – Understanding historic growth allows you to forecast revenue and set realistic growth goals. You can align teams and resources accordingly.

• Comparing performance – Growth rates help you evaluate your performance versus competitors and industry standards. This enables context on your standing.

• Communication to stakeholders – Growth rates enable you to communicate progress and traction with investors, shareholders, employees and customers.

How to Calculate Your SaaS Company’s Growth Rate

Calculating your SaaS growth rate is simple once you know the formula. Here are the key steps:

1. Determine Your Starting Monthly Recurring Revenue

• Pull the MRR at the start of the time period you want to measure. For an annual growth rate, use the MRR at the beginning of that year.

• MRR refers to all subscription revenue normalized to a monthly basis. It should exclude one-time fees, overages, and professional services.

• Your accounting system should be able to export your starting MRR. If not, manually calculate it.

2. Determine Any Expansions and Contractions

• Look at any upward or downward MRR movements over the time period, which may include:

• Expansions: Increased MRR from existing customers upgrading plans or purchasing add-ons.

• Contractions: Decreased MRR from downgrades, churned customers, or reduced usage.

• Calculate the net expansion (new MRR added – MRR lost from contractions) over the period.

3. Add Expansions and Subtract Contractions

• Take your starting MRR and add any expansion MRR.

• Then subtract any contracted MRR from downgrades, churn etc.

• This gives you your end period MRR.

4. Divide the End Period MRR by Your Starting MRR

• Take your end period MRR and divide it by the starting MRR for that time period.

• For example, if starting MRR was $100,000 and end MRR was $150,000, you would do:

  $150,000 / $100,000 = 1.5

• This shows a 50% growth rate for that period.

And that’s it! By calculating the percentage MRR change over a period, you get your compound annual growth rate.

Growth Rate Goals and Benchmarks for SaaS Companies

Once you know your SaaS growth rate, how do you evaluate whether it’s good? Here are some goals and benchmarks to aim for:

10%-25%+ Annual Growth for Established Companies

For most established SaaS companies, 10-25%+ annual growth is a healthy target, especially for companies past the $10M+ ARR mark. Anything above 25% annually is excellent.

100%+ for Early Stage Companies

For early stage SaaS startups under $10M ARR, you should target triple digit growth above 100% annually. Growth naturally slows as you scale so aim high early.

Expanding Net Dollar Retention Rate

You want your Net Dollar Retention Rate (comparing net expansion vs contraction each period) to consistently be over 100%, showing net expansion within your existing customer base.

Accelerating Quarterly Growth

While annual goals are useful, make sure growth is accelerating quarter-over-quarter, not decelerating which may indicate issues.

Outpacing Close Competitors

Compare your growth rate to close competitors. You should aim to grow faster than competitors in your market.

Aligning With Investor Expectations

Discuss your growth goals with investors. They often have benchmarks for growth expectations at your stage.

The key is setting realistic growth goals aligned with your business model, market, and stage. Consistently monitor your SaaS growth rate versus those goals.

How to Use Your SaaS Growth Rate to Make Business Decisions

Understanding your historic SaaS growth enables smarter business decisions in key areas:

1. Forecasting and Planning

Analyze growth rates over time to detect changes and forecast future revenue. Set growth goals and align teams, hiring, and resources accordingly.

2. Prioritizing Expansion

If growth is stagnating, double down on initiatives to expand within existing accounts and accelerate new customer acquisition.

3. Evaluating New Markets

Compare growth rates across market segments. Expand into segments growing rapidly and optimize or pause slower ones.

4. Identifying Churn Causes

If contraction is increasing, dig into churn reasons and address product or retention issues.

5. Optimizing Pricing and Packaging

Test pricing changes or new product tiers if expansion isn’t keeping pace with customer growth.

6. Spotting Bad Sales Fit

If growth stalls despite a strong product, evaluate whether you have product-market fit and sales model fit.

7. Allocating Resources

Double down on highest growth levers by reallocating resources, hiring, and budgets.

Regularly tracking your SaaS growth rate provides unique insight into the trajectory of your business. Leverage growth analytics to make smart decisions and fuel your company’s continued success.

Key Takeaways on SaaS Growth Rate

• SaaS growth rate measures percentage revenue increase/decrease over time. It shows the momentum of acquiring new customers and expanding in accounts.

• High growth signals product-market fit, effective execution, and future potential. Growth impacts everything from valuation to funding ability.

• Calculate growth rate by dividing end period MRR by starting MRR. Subtract contractions and add expansions over the period first.

• Target 10-25%+ growth for established companies, 100%+ for early startups, and faster growth than competitors.

• Analyze growth rates to forecast revenue, set goals, allocate resources, and make other data-driven business decisions.

Tracking your SaaS growth rate provides a quantitative compass to guide your startup or established company to new heights. Measure it consistently and leverage it to make strategic decisions that fuel your continued success.