What today is known as cloud computing or Software-as-a-Service was established back in the 1960s and was called a time-sharing system. This model remained popular in the 70s and 80s but SaaS statistics show it reached its culmination in the 90s when businesses realized they needed a way to get the applications on multiple personal computers without using too much drive space.
The combination of innovation with security, usability, and cost benefits has proved to be winning for the software-as-a-service model. Below you will read the most important statistics that show where the SaaS industry stands and where it’s headed.
SaaS is a type of cloud computing that eliminates the cost of acquiring hardware and its maintenance, as well as software licensing and installation. Thanks to the benefits it brings to the table, Software-as-a-Service has shown a positive trend in the market with more and more companies opting out to try it. Let’s take a look at the current market size of the SaaS industry.
Initial projections were that SaaS revenue will hit the $100 billion mark in 2019. But, this happened a bit earlier, in Q3 2018.
SaaS statistics show that Microsoft leads the way with an 18% market share when it comes to revenue. The tech giant reported $10.1 billion in Business Process and Productivity revenue which includes the Dynamics line, LinkedIn, and Office 365. Salesforce comes next with a 12% market share and $3.74 billion in revenue, followed by Adobe with 6.7%, Oracle with 4.9%, and SAP with 4.5% market share.
The SaaS IPO stats place Salesforce as the industry pioneer. The company behind the world's most prominent CRM software was established in the late 90s and today has a market capitalization of $76 billion with more than $10 billion in revenue per year. Among the largest, publicly-traded SaaS companies are also Workday, ServiceNow, and Shopify; with market capitalizations of $22 billion, $20 billion, and $11 billion, respectively.
Global software industry statistics place Salesforce as a key player in the SaaS industry. Its shares rose 3% in the most recent trading and they reported $3.74 billion for the first quarter of 2020 which is more than the expected $3.68 billion. These results only confirm Salesforce’s steady annual revenue increase of 20% over the past 10 years.
As the software development industry statistics show, besides the publicly traded companies, there are approximately 10000 private ones that generate less than $3 million in revenue. The reason behind this figure is simple; the entrepreneurs want to automate their business activities and the cost of starting a SaaS company is declining.
Current software development statistics show that users still prefer to keep their workloads on-premise. In 2017, 37% of the workloads were on-premises while only 31% in the public cloud, 19% in the private cloud, and 18% in the hybrid cloud. This, however, is changing rapidly, and by 2020, 41% of the workloads will be on the public cloud, 20% on the private cloud, and 22% on the hybrid cloud. Only 27% of all workloads will be on-premises.
If you ever wondered how many SaaS companies are there, let’s start with the astonishing figure for the marketing sector. The Chiefmartec research has identified 6,823 SaaS companies in the marketing space which was 27% more than in 2017 when they mapped out 5,381 companies that have invested in the SaaS business model.
Boosting the IT service delivery speed is the main reason for the majority of businesses to adopt cloud-based SaaS. According to the Finance Online report, 63% of businesses opt for SaaS because they want more flexibility to the changing marketing conditions while 58% of organizations love SaaS because it allows business continuity. Other reasons for adopting cloud-based SaaS is to upgrade customer service/support, decrease TCO, replace proprietary technology, and decrease resource waste.
The Software-as-a-Service model is rapidly growing, getting the sympathies of enterprise IT organizations and even software companies who are embracing this phenomenon and offer products on a subscription basis instead of selling licenses. Let’s take a look at the projections about SaaS growth and adoption.
According to SaaS statistics, the market hit the $141 billion figure in 2019. Its rapid expansion will continue, and in the upcoming year, the SaaS market is expected to hit $157 billion. This is more than double from its market size in 2014 when the industry size was $63.19 billion.
When it comes to choosing between public clouds, users have various options for cloud delivery which include the “as-a-service” structure, software, or platform. Recent SaaS stats show that businesses prefer SaaS over other delivery models. For comparison, 80% of businesses use at least one SaaS application while 64% of them use at least one PaaS app and 48% use one or more IaaS apps.
The latest forecasts show that the revenue from corporate mobile SaaS will reach $7.4 billion by 2021, up from $4.4 billion in 2016. Moreover, the SMB mobile SaaS is expected to jump from $16.5 billion in 2016 to $30.5 billion by 2021. Over that period, the CAGR is expected to be 11% for the corporate mobile SaaS and 13.1% for the SMB mobile SaaS.
SaaS growth rates are astonishing; just between 2015 and 2017, the number of SaaS apps averagely used by organizations doubled up from 8 to 16. This upward trend will continue as 73% of businesses have said all of their apps will be SaaS by 2020.
The number of cloud workloads installed is also rapidly growing. In 2018, there were 206 million workloads installed, and by 2021, we are likely to witness this number reach a whopping 380 million.
A Deloitte survey conducted in 2018, has shown that SaaS has been part of almost all leading software development. The vast majority of CIOs (93%) have either adopted or plan to adopt SaaS. 70% of them cited the agility and scalability as top drivers of SaaS adoption trends. Moreover, over half of the surveyed CIOs have shared they expect to use cloud software for crucial apps in the next three years.
According to the SaaS sales benchmarks, software development companies with an annual growth rate of 20% have only an 8% chance of surviving. This indicates that software companies need to grow quickly in order to be able to compete. Fast growth means more capital which, in turn, makes it easy to raise money, hire real experts, and more.
Research on the SaaS industry trends shows that new customer acquisition is a priority growth activity for the vast majority of SaaS businesses. Existing customer renewals are the top growth strategy for 59% of SaaS businesses, followed by upselling and add-on sales which are in the focus for 46% of businesses.
In 2011, only 4% of healthcare providers had adopted cloud computing. According to SaaS healthcare stats, the market is growing by 20% a year ever since, and in 2019 it has hit $23.4 billion at a CAGR of 17.2%. The healthcare cloud computing market is expected to reach $51.9 billion by 2024.
SaaS is a cost-efficient and reliable option that is easy to start, operate and maintain for businesses in a variety of industries and niches. It’s not a surprise that more and more organizations are rapidly adopting it and are ready to invest more money into it. The following stats show the spending benchmarks for SaaS.
In 2018, an average company spent $343,000 on SaaS, which was 78% more than in 2017. According to recent forecasts, this number will continue to go upwards, growing by 118% by 2020. Furthermore, SaaS spending by company size also shows a steady rise over the past five years.
SaaS investment trends are on the rise for small businesses. In fact, 85% of small organizations will invest in SaaS by 2020. The two main reasons for such wide adoption are the change in technology and the increased reliance on digital which enticed small businesses to opt for SaaS in order to optimize their workflows in a cost-effective way.
The 2019 Annual SaaS Trends Report confirms that SaaS adoption and spending rise continuously. In 2018, the cost per employee of SaaS subscriptions averaged $2,884. This makes it clear that companies spend more on software than on hardware, and this discrepancy is projected to become greater in the future.
Despite the fact that enterprise Software-as-a-Service is a mature market, SaaS facts show that it accounts for only 15% of the general enterprise software spending. In the second quarter of 2018, SaaS was generating $20 billion in revenue. This number, however, is growing by 32% per year, which is not surprising considering that more and more businesses are replacing their outdated infrastructure and aim towards digital transformation through SaaS adoption.
When it comes to IT budget allocation, hardware will still get the largest portion, or 33%. Budgets for cloud and software remain steady year over year at 22% and 29%, respectively. The smallest portion of the IT budget, 15%, is expected to go to managed services.
All departments can leverage the potential of SaaS apps and the average spend on these apps has been increasing year-over-year since 2010. According to SaaS benchmarks over the past four years, there’s been a steady increase in SaaS app spending. Engineering, sales, and business ops lead the way as the top three departments with the biggest share of subscription dollars, followed by DevOps and Marketing. On the other hand, only the HR software spend noted a steady YOY increase.
Young startups shouldn’t expect to reap all the benefits right after the first year. Quite the contrary, SaaS expense benchmarks show that they will be spending 92% of their first-year revenue on customer acquisition.
Churn rates indicate the number of terminated subscriptions within a set period of time. A churn rate that is higher than the growth rate is the most common reason why SaaS companies fail. In the section below, you can find out the most important statistics regarding churn rates and learn what to avoid.
The churn rate depends on the SaaS business scale and maturity. SaaS statistics show that companies making more than $10 million in revenue have an average churn rate of 8.5%; while those that make less than $10 million are likely to have a churn rate of a whopping 20%. Interestingly enough, the majority of startups have noted churn rates of 60%.
Two-thirds (or 32%) of the companies have reported churn rates of 5%, while the other 32% have experienced churn rates of 5-10%. 17% of the respondents had experienced churn rates of 10-15%, and almost one-fifth had churn rates beyond 15%.
The latest SaaS stats on churn rates by company growth show that 34% of high-growth companies have experienced high churn of over 10%, while 39% of them saw low churn rates under 5%. A medium churn of 5-10% was reported by only 20% of high-growth companies. Moreover, medium-growth companies are likely to experience medium churn. In fact, 40% of them reported so. On the other hand, the majority of low-growth companies (42%) have seen high churn.
Depending on the size of the company, the acceptable churn rate ranges between 5% and 7% per year. This means 0.42—0.58% churn on a monthly basis. In other words, this means losing approximately 1 in 200 customers.
The majority of SaaS companies take into account the number of customers while 62% measure churn rates by revenue. Besides these two popular methods, 22% of businesses use the number of users or licenses and 16% use measure it by product downgrade. What’s important is that all of these methods are meaningful and measurable.
According to the 2019 SaaS report, 34% of users have seen their churn rates decrease while 36% of them saw no change. 30% of SaaS consumers have reported their churn rates increased over the past 12 months. If you’re in the lucky 70% who saw either a decreased churn rate or no change at all, good for you!
Usually, the longer the contract, the lower the churn rate. That’s why for contracts of over two and a half years the churn rate is 8.5%. For comparison, for contracts that average less than a year, the churn is 16.7% which is almost double. Interestingly, contracts of one and one and a half years have higher churn rates (15%) than month-to-month contracts (14%).
SaaS sales statistics show that the way the product is sold greatly impacts the churn rates. Field sales have noted the lowest churn rates of 11.8% which is below the median rate. Inside sales and Internet sales have seen churn rates of 14% each, while channel sales is the distribution method with the highest rate of 17%.
If your customers are logging in to a mobile app, there is a 4 times higher chance for retention compared to the ones that use a web interface. Investing in a mobile platform is a must as it provides great user experience which, in turn, brings about high retention rates.
With a poor pricing strategy, you will drive your potential customer away or miss the chance to grow your revenue. On the other hand, an effective pricing strategy will help you maximize customer value and drive growth. Below you can take a look at the SaaS trends and best practices for pricing.
The majority of companies (39%) define how much they will charge based on value. 26% of companies make a judgment call in order to set the prices, 25% of them copy competitors, while 10% take a cost-plus approach.
Seat-based pricing is the most popular model but usage-based pricing comes as a close second with 38% of companies implementing it. Additionally, companies that use usage-based pricing would say that their price and value align.
According to the software industry statistics, SaaS companies are generally distancing themselves from the trend of offering discounts. Only 31% of companies offer a small discount while 38% provide an occasional discount of 10-25%.
It seems that price adjustment is the most effective strategy to improve revenue generation. Price management involves aligning the primary value metric with the customers’ perception of where the value is.
The median cost to acquire $1 of annual recurring revenue for a new customer is $1.32. The cost drops significantly to $0.71 when using upselling tactics on existing customers. Similarly, when using expansion tactics on existing customers the cost is only 28% of the new customer cost or $0.38.
SaaS stats confirm the best number of paid packages is between 3 and 4. Research has shown that providing too much or less is equally ineffective. This is because an overly simple pricing structure will kill opportunities for upsell while complicated pricing will give the potential buyers a paralysis by analysis. However, this number may vary depending on your business variables and how often your clients ask for customized offers.
Freemium and free trial business models are quite popular among users because they enable them to test the product before committing to a paid plan. Still, free trial statistics show that this practice is not adopted by an astonishing 38% of companies. The reason for this is the potential risk of the free trial option doing more harm than good because it’s not a good fit for the particular business type. Or the freemium model harming the revenue in case users are satisfied with the product as-is and see no need to upgrade to a paid plan.
According to SaaS marketing stats, over half of the analyzed companies offer annual pricing plans. This can be quite beneficial for both sides; customers will get fair discounts with annual recurring billing and the SaaS business will reduce churn rates. In fact, this type of churn prevention can convert up to 6.5% of the time and increase the CLV which results in a revenue boost of 4%.
SaaS makes our lives easier but security remains one of the main concerns associated with it. Let’s find out what are the most common risks and whether SaaS is really a source of worry.
Cost with 59% and security with 47% are the top criteria IT experts consider when they buy SaaS apps. Ease of use, integrations, customer support, admin and management capabilities, uptime guarantees are also important for them.
The vast majority of the files (44.4%) are confidential documents such as business plans or financial records. Personally identifiable information data accounts for 3.9%, password-protected files make for 3.2%. Furthermore, 2.7% is email data exports, 2.3% is payment information, while 1.6% is protected health information.
Thanks to the GDPR implementation, the SaaS industry saw an increase in privacy. But security concerns arise with the increased adoption of SaaS. For 67% of consumers cybersecurity professional data loss and leakage remains the biggest concern, while for 61% of them that is data privacy. Confidentiality, accidental exposure, and legal and regulatory compliance round up the list of the top five security concerns.
These 44 SaaS statistics prove the importance and benefits of the Software-as-a-Service model. They also show that companies are slowly but surely starting to realize they can leverage SaaS to create new businesses and thrive. All in all, it’s safe to say that 2020 will bring even greater success for the industry. In the upcoming year, the expansion will continue at impressive rates and these stats can help you put an edge on your strategy and prepare for market disruption.