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Key Takeaways on Retention Benchmarks for SaaS Companies

October 13, 2021

SaaS Capital has been conducting the industry’s top benchmarking survey in Q1 of each year for nearly a decade. Here, we summarize the findings relating to retention in our 2021 survey of private SaaS company owners and execs.

Retention or Churn?

A note first on terminology. Retention is, of course, the glass-half-full cousin of “churn,” the enemy of all subscription businesses. In the numbers that follow, churn is usually best described as (1 – “gross retention”), meaning, if you have 95% gross retention, that equals 5% churn. Net retention, in turn, adds to gross retention the positive effect of upsells, so net retention is always higher than gross retention. And, the means of calculation should follow a cohort over time for consistency.

SaaS Retention Formula


The Impact of COVID-19 on Retention

  • COVID was the major headline story of 2020, but surprisingly had a low effect on retention for private SaaS companies. We can’t fully explain this with the data, but we speculate that SaaS, among all industries, was particularly vital to continuity in a shift to remote work.

The Impact of Funding on Retention

  • Bootstrapped companies outperformed VC-backed companies on retention for the first time ever. This also requires some speculative explanation, but we think it is likely that the VC “playbook” for managing product-market fit and reducing churn is now widely available to non-venture-backed SaaS companies at this point.

The Impact of Industry Focus on Retention

  • Vertical-focused SaaS companies tended to outperform horizontal on retention, reflecting a small but persistent difference between the two types of companies. We think this may be due to the ability of more highly focused vertical SaaS companies to achieve tight product-market-fit, on average.

The Impact of Company Size on Retention

  • Across the size categories (from sub-$1 million up through over $20 million) we found that gross — but not net — retention actually tended to be lower at larger companies. One way to explain this is that part of a SaaS company’s journey to $20 million involves shifting from an “explore” mode where all customers are sought-after, to a more focused “exploit” mode where only the best-fitting customers make sense to attract and retain. Under that idea, it becomes normal for a maturing SaaS company to go through a period of shedding ill-fitting customers (lower gross retention) while experiencing upsell growth from happy well-fitting customers (offsetting the losses to achieve good net retention).

The Relationship Between Growth and Retention

  • Lastly, high growth (over 40% annualized) almost requires a greater than 100% net retention. Viewed another way, the turbo-boost of having your revenue “automatically” grow year-over-year is an extremely powerful way to get into the higher growth segment of SaaS companies. And the inverse is true as well; a “leaky bucket” with low retention is harder to fill.

Private SaaS Retention Benchmarks - 2021

We explore these themes, and others, more robustly in our Research Brief 2021 B2B SaaS Retention Benchmarks, and invite you to download a copy here.

Additionally, Rob Belcher joined You Mon Tsang, CEO & Founder of ChurnZero, earlier this year for a webinar on retention. You can access the webinar here.

Randall Lucas

Managing Director, SaaS Capital

SaaS Capital® pioneered alternative lending to SaaS. Since 2007 we have spoken to thousands of companies, reviewed hundreds of financials, and funded 80+ companies. We can make quick decisions. The typical time from first “hello” to funding is just 5 weeks. Learn more about our philosophy.

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