SaaS Retention and the ACV Factor

This week we reviewed some data generated by SaaS Capital, a provider of growth debt for B2B SaaS companies, in their annual report on the state of SaaS. The report‘s purpose is to give founders, CEOs, investors, and analysts insights into the state of B2B SaaS.

It’s important to note that the report reflects the period from the end of 2018 to the end of 2019. 

All About ACV

From our vantage point, the report’s biggest takeaways involve the net retention for SaaS companies by annual contract value (ACV). According to SaaS Capital’s research and analysis, SaaS companies with ACV in excess of $12,000 have net retention of 100% or more. For SaaS companies under $12,000 ACV, net retention is 96%. 

Why is this finding so interesting? Because in the local, SMB SaaS space, we find very few companies with ACV in excess of $12,000. Consider a company like Podium. A monthly rate of $399 ($400) grosses up to $4,800 in ACV. That is way short of the $12,000 that the data suggests is necessary to have net retention at or in excess of 100%. 

That does not mean that all SaaS companies under $12,000 per year are under 100% net retention. What it does mean is that the likelihood of their being at or above 100% is less than those at or above $12,000 in ACV.

The Stakes for SMB SaaS

I am sure the operators of SMB SaaS companies are well aware of these metrics. And we can observe many layering on additional software solutions to grow ACV. We also observe many SMB SaaS companies pushing into the payments space as a means of growing ACV. 

One of the ways to overcome net retention of less than 100% is of course to have extremely high growth rates of new accounts. But given the current state of the SMB economy, we are not optimistic that many of the SMB SaaS companies will be able to exhibit the kind of exponential growth necessary to cover for the shortage in terms of net retention.

And we have observed a number of the companies we pay close attention to in the SMB SaaS space paring back their outbound sales resources as a reaction to the COVID -19 lockdown. It should be really interesting to see how those companies fare in terms of net retention at the end of 2020. 

The short report is worth a look for those operating in the SMB SaaS space. 


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