7 Essential B2B SaaS Benchmarks To Look Out For
If you’re looking to grow your business-to-business (B2B) SaaS business to the best state that it could become, you need to constantly measure your progress.
That’s why you have a huge variety of SaaS metrics that gauge different aspects of your business operations.
But tracking your key performance indicators (KPIs) won’t be enough. You have to know whether or not your current performance is enough.
And that’s where benchmarks come in.
In this article, we will talk about the key B2B SaaS benchmarks that you should track in order to measure your progress and make sure that you’re at par with industry standards.
Factors That Affect B2B SaaS Benchmarks
When it comes to benchmarks, what we all need to know is that there’s no single standard for all the B2B SaaS businesses out there.
Remember that companies come in many different shapes and sizes. And there are many factors that can affect the standards and benchmarks for their metrics.
These factors include the following:
Obviously, the industry that you’re in will have a big impact on your benchmarks. The competitive landscape, customer acquisition costs, and other factors will vary from one industry to another.
For example, a B2B SaaS company that mainly dwells on the accounting niche will have very different benchmarks compared to a SaaS business that focuses on sales tools. They might have different marketing strategies, channels, and even pricing models.
Another factor that can affect your benchmarks is the size of your SaaS company. A startup with only a handful of employees will have many different goals and standards compared to an established enterprise SaaS business.
The former will be more focused on growth while the latter would be more focused on profitability and sustainability.
In general, small companies will have higher growth rates than big companies. So, their benchmarks should reflect that focus on growth.
Your target market can also affect your benchmarks. If you’re selling your SaaS product to small businesses, then you might have different standards compared to a SaaS business that’s aiming for enterprise clients.
The reason for this is simple: the needs of these two markets are different.
Smaller businesses are more price-sensitive while enterprises are more concerned with getting the best value for their money.
Now that we’ve looked at some of the factors that can affect your benchmarks, let’s take a look at some of the key metrics that you should track and the benchmarks that you should aim to exceed. Or at least match.
1) Conversion Rates
When it comes to B2B SaaS marketing and sales, the conversion rate is one of the most important metrics that you should track. It is a measure of how well your marketing and sales efforts are working at each step of the customer journey.
Conversion rate is the percentage of people who take a specific desired action for a particular marketing or sales effort.
For example, if you’re trying to get people to sign up for a free trial of your software, your conversion rate would be the percentage of people who actually end up signing up for the trial.
Now, you can track conversion rates for various transitions in between the stages of the buyer’s journey or the SaaS sales funnel.
Let’s take a look at some of them.
Visitor-To-Lead Conversion Rate
One of the most common and most effective lead generation channels is your website.
You may be generating leads through gated content, such as eBooks, tutorial videos, or webinars. Or it could just be a simple call to action (CTA) on your site that leads to a landing page. Or you could be capturing leads from your live chat widget.
Whatever the case, you need to know how many of the people who visit your site are actually becoming leads. This metric is known as the visitor-to-lead conversion rate.
To calculate it, simply take the number of leads that you generated from your website in a given period and divide it by the total number of unique visitors to your site during that same period.
For example, if you generated 200 leads from your website last month and you had 10,000 unique visitors, your visitor-to-lead conversion rate would be 2%.
According to First Page Sage, the benchmark for the visitor-to-lead conversion rate can vary according to the size of your target market:
- Small businesses (less than $10 million in annual revenue): 2.3%
- Small to medium-sized ($10 million to $100 million): 1.4%
- Middle market ($100 million to $1 billion): 1.2%
- Enterprise (more than $1 billion): 0.7%
Lead To MQL Conversion Rate
A marketing qualified lead (MQL) is a lead who is significantly interacting with your marketing materials, such as your website, landing pages, or content marketing assets.
They could be downloading eBooks, signing up for webinars, or watching most of your videos. Whatever the case, they are expressing interest in your product.
Not all leads will be ready to buy your product right away. In fact, most of them will need some more convincing before they’re ready to take that step.
That’s where MQLs come in. By definition, an MQL is a lead who is more likely to become a customer than other leads.
To calculate your MQL conversion rate, simply take the total number of MQLs that you generated in a given period and divide it by the total number of leads that you had during that same period.
For example, if you generated 500 MQLs last month and you had 1,000 leads, your MQL conversion rate would be 50%.
Below are the lead-to-MQL conversion rate benchmarks for different target market sizes:
- Small businesses: 37%
- SMB: 41%
- Middle market: 40%
- Enterprise: 34%
MQL-to-SQL Conversion Rate
A sales qualified lead (SQL) is a lead who is ready to engage with your sales team.
They could be requesting a demo, scheduling a meeting, or asking for pricing information. Whatever the case, they are showing interest in buying your product.
To calculate your MQL-to-SQL conversion rate, simply take the total number of SQLs that you generated in a given period and divide it by the total number of MQLs that you had during that same period.
For example, if you generated 200 SQLs last month and you had 500 MQLs, your MQL-to-SQL conversion rate would be 40%.
The benchmarks for MQL-to-SQL conversion rate are as follows:
- Small businesses: 32%
- SMB: 39%
- Middle market: 39%
- Enterprise: 40%
2) ARR Growth Rate
The annual recurring revenue (ARR) and monthly recurring revenue (MRR) are two of the most important metrics for any SaaS business.
The ARR is the total revenue that a SaaS company generates from its recurring revenue streams on an annual basis. The MRR is the monthly equivalent of the ARR.
While your recurring revenue is a very direct way to measure how well your SaaS business is doing, there’s really no standard as to how much money you’re making every month or every year.
But there are standards on the growth of your recurring revenue, particularly your ARR growth rate.
The benchmark for annual recurring revenue growth rate will depend on the maturity of your SaaS business:
SaaS Startups: T2D3 Growth
The T2D3 framework follows that a SaaS startup should triple its revenue every year for two years and then double it every year for the next three years. That’s where it gets its name—triple triple double double double—T2D3.
That means having ARR growth rates of 300% in the first two years and 200% in the next three.
Sounds like a tall order? Well nowadays, with the high demand and competition in the SaaS market, that’s what it takes to stand out.
But don’t worry too much about it. Achieving this kind of growth is very possible with the right marketing, sales, and customer retention strategies.
Older SaaS Companies: 15% to 45%
According to Eleken, the ARR growth rate benchmark for SaaS businesses that are past the hyper growth stage is around 15% to 45%.
That’s still a pretty wide range, but it makes sense when you think about the different stages that a B2B SaaS company can be in.
Most SaaS businesses in the early stages of growth tend to invest heavily in marketing and sales in order to acquire new customers. As a result, their ARR growth rates will be on the higher end of the spectrum.
And as we mentioned earlier, late-stage SaaS companies are already focused on making an actual profit while working towards their respective exit strategies.
3) Churn Rate
Churn—one of the most dreaded words in the SaaS industry, and yet one of the most important SaaS metrics to track.
Churn rate is the percentage of customers that cancel or do not renew their subscription to your SaaS product in a given period of time.
In a perfect world, the churn rate would be zero. But since we’re not in a perfect world and churn is still an inevitable reality, we need to set standards on what is a good churn rate for SaaS companies.
There are many different factors that can affect the benchmark for churn rate. But one of the most relevant ones would be your company’s maturity:
SaaS Startups & Small SaaS Businesses: 3% to 5%
If you’re just launching a SaaS startup, you may expect to have a churn rate of 10% to 15% in your first year.
That’s understandable, given that you’re just starting out. You may still be working out the kinks in your product and pricing. Plus, you may still be trying to find the right customer fit.
But as you start to grow and scale your business, you should aim to get your monthly churn rate down to 3% to 5%.
More Mature SaaS Companies: 1% to 2%
For SaaS businesses that are further along in their journey, the benchmarks for churn rate are even lower.
The majority of mature B2B SaaS companies aim to target enterprise customers, who tend to have longer contract periods and be more loyal. That’s why they usually have lower churn rates.
For these companies, a churn rate of 1% to 2% is considered the gold standard.
4) Net Revenue Retention Rate
The net revenue retention (NRR) rate is a metric that measures the amount of revenue that a company retains from one period to the next.
Calculating your NRR rate involves two additions and two reductions to your MRR:
- Starting MRR: Your initial MRR at the start of the month.
- Expansion MRR: The MRR added as a result of upselling.
- Contraction MRR: Lost recurring revenue due to customers downgrading their subscriptions.
- Churn MRR: The revenue loss due to customer churn.
To calculate your NRR, add your starting MRR and expansion MRR. Then subtract the sum of the contraction MRR and churn MRR. Then divide the resulting figure by your starting MRR.
The NRR benchmark will depend on your target market and the composition of your customer base:
SMB Customers: 90% or more
The goal of any SaaS business is for its revenue retention rate to be at least 100%. That means whatever you lose due to churn and downgrades, you make up for it through upselling.
But in the real world, that’s not always possible.
For SaaS companies that target SMBs, a net revenue retention rate of 90% is still considered good.
You see, SMBs tend to have shorter customer lifecycles and are more price-sensitive. They’re also more likely to churn when they hit a rough patch financially.
Enterprise Customers: 120% or more
As we’ve mentioned earlier, enterprise customers tend to stick with their SaaS providers for the long haul.
They’re also less price-sensitive and have deeper pockets, so their SaaS spending isn’t easily affected by the ebbs and flows of the economy.
What’s more, as these enterprises continue to expand, they would need not just more users, but also more features.
For these reasons, SaaS businesses that target enterprise customers have an average net revenue retention rate of 120% or more.
5) CLV/CAC Ratio
To understand this SaaS metric, we first need to understand the customer lifetime value (CLV) and customer acquisition cost (CAC).
The CLV is the total amount of revenue that a customer will generate during their lifetime. While the CAC is the total amount of money that a company spends to acquire a new customer, which often includes your marketing and sales spend.
Dividing your CLV by your CAC gives you your CLV/CAC ratio, which is practically your return-on-investment (ROI) for your marketing and sales costs.
For example, if your CLV is $3,000 and your CAC is $1,000, then your CLV/CAC ratio would be 3:1. That means for every dollar you spend on acquiring a customer, you’re getting three dollars back in return.
The standard CLV/CAC ratio for SaaS businesses is around 3:1 to 5:1.
Of course, anything less than 1:1 means that you’re already losing money. But even if you go slightly higher at 2:1, that may still not be enough for sustainable growth.
On the other extreme, a CLV/CAC ratio higher than 5:1 isn’t necessarily good either. That’s because it means you’re not reinvesting enough in customer acquisition, which can stunt your growth in the long run.
6) Net Promoter Score (NPS)
The net promoter score (NPS) is a metric that measures customer satisfaction. It’s calculated by launching an NPS survey.
This survey asks customers how likely they are to recommend your product on a scale of 1 to 10. You can the respondents into three categories:
- Promoters (9-10): These are your happiest customers who are loyal and will continue using your product and referring others.
- Passives (7-8): These are customers who are satisfied but could be lured away by the competition.
- Detractors (1-6): These are unhappy customers who could spread negative word-of-mouth about your product.
To calculate your NPS, take the percentage of promoters and subtract the percentage of detractors.
For example, if you have 50% promoters, 30% passives, and 20% detractors, your NPS would be 50-20 = 30.
The average NPS score for successful B2B SaaS businesses is around 50 to 80.
But of course, the higher your NPS score, the better.
7) Cash Conversion Score
The cash conversion score (CCS) is a SaaS metric mainly used by investors to assess their ROI.
To calculate it, take your total ARR and divide it by the difference between your raised capital and the cash on hand you had before the funding round.
For example, let’s say you had an ARR of $10 million for the year. It was made possible through a raised SaaS capital of $12 million. But you already had $4 million on hand even before funding.
That gives you a CCS of 1.25, denoted as 1.25x. In other words, your SaaS company produced an ROI of 1.25 for your investors during that year.
According to Bessemer Venture Partners, you can categorize cash conversion scores into three:
- Good: 0.25x to 0.5x
- Better: 0.5x to 1.0x
- Best: More than 1.0x
Final Thoughts About B2B SaaS Benchmarks
Knowing (and beating) the benchmarks in your industry is essential to the success of any business.
It’s one of the best ways to make sure that you’re on track and to identify areas where you need to improve.
For B2B SaaS businesses, the above metrics are some of the most important ones that you should track. They’ll give you a good overview of your business’s health and help you make informed decisions about where to focus your efforts.
Looking for more guides to help you grow your SaaS business? Check out our blog here.