Retention Benchmarks and Insights from Studying over 2,100 SaaS Businesses

Hi HN,

Over the past few weeks, we've been studying retention data from over 2,100 SaaS businesses. We’ve been digging for retention trends, patterns, and insights. Sharing some key takeaways from our research here:

1) Retention in 2022 was harder than ever. More than half of SaaS businesses had lower retention rates in 2022 when compared to 2021. This is in sharp contrast to 2021 during which we saw almost 70% of businesses having a higher retention rate vs. 2020.

2) Companies with best-in-class retention grow at least 1.5-3x faster than their peers. SaaS businesses with a net retention rate of over 100% grow 43.6% per year. Businesses with a net retention rate of less than 60% grow at just 13.1% per annum.

3) B2B SaaS businesses enjoy higher net retention than B2C SaaS. Only 2.7% of SaaS businesses with an avg. revenue per account (ARPA) less than $10/month have net retention over 100%. In contrast, 41.1% of businesses with an ARPA over $500/month have net retention of over 100%.

4) Retention becomes more important as SaaS businesses enter the post-PMF growth phase. Businesses with ARR in the range of $1-3m have a top quartile net retention rate of 94%. Those in the $3-15m ARR range have it at 99%, and those at scale ($15-30m ARR range) have it at 105%.

5) Best-in-class net revenue retention is in the ~110/120% range. High net retention is usually a result of a high gross retention + strong expansion loop. High retention also means better growth, a more capital-efficient business, and even higher valuations from investors.

6) Expansion is the key driver of higher net retention at higher ARRs. 37.1% of revenue added for SaaS business with ARR in the range of $15-30m comes from expansion. At scale, if you are not upselling or cross-selling to your existing customers you are missing out.

7) A net retention rate over 100% does not mean that you can organically grow forever. Retention starts to decay in year two. This is because of higher churn and lower expansion revenue in year two when compared to year one.

8) Best-in-class B2B SaaS businesses are not only able to retain new business revenue but also able to grow it from day one. The top quartile of SaaS businesses with an ARPA over $100/month have a 3 and 12 months new business net retention of over 100%.

I'm happy to answer any questions you might have.