How long to reach $1m ARR? Only 4% of all startups manage to reach the magical $1m ARR milestone. For those who do, best in class performance is less than a year, but on average it takes ~3 years (after getting the first paying customer in, so probably 4-5 years from starting your company) Building takes time.
Startups often see rapid early-stage growth, with average ARR growth of 144%, but as companies mature, this typically slows to 15%–45% year-on-year. Early-stage companies can track a 12–18 month trend or target a 10% weekly growth for faster expansion.
Why Achieving $1M in ARR Mattered. Over the years, it has been reasoned that to achieve $1M in ARR it would take about a (few) hundred customers or so. This took best-in-class companies around two to four years. **The bigger ACV deals, often platform like solutions, experience sales cycles as much as 9 to 18 month.
0.2% of startups reach $100M ARR. It's really, really hard.
During this turbulent transition, my rallying cry for enterprise founders is to focus on becoming “centaurs”: a term for startups that hit $100M in ARR. At this stage, an enterprise software startup is default alive and typically able to grow ~30% while staying cash flow positive.
The valuation of a SaaS company with $10 million ARR depends on the applicable ARR Multiple. For example, if the company has a growth rate that justifies an ARR Multiple of 10x, the valuation would be approximately $100 million. If the multiple is 15x, the valuation would be $150 million.
To summarize: The average SaaS company takes ~3 years to hit $1M ARR. It takes 2 years or less for the top performers.
The Rule of 40 states that the sum of a healthy SaaS company's annual recurring revenue growth rate and its EBITDA margin should be equal to or exceed 40%. It is a measure of how well a SaaS balances growth with profitability.
Buy a low-cost index fund that tracks the S&P 500; your $100,000 could grow to $1 million in about 23 years. You'll get there even faster by investing additional funds. Add $500 monthly and reach $1 million in just 19 years. Of course, past results don't guarantee future outcomes, but history is on investors' side.
3x to 5x – Startups in this category are middle of the pack. Investors consider these companies as a fair shot to success. More than 10x – This category is the 'A-list' as per investors. Startups displaying a 10x or more valuation have the highest chances of growth, profits, and expansion.
78 is the magic number when it comes to SaaS, to predicting the MRR (monthly recurring revenue) you need to keep hitting month-in-month-out to reach your ARR (annual recurring revenue) goal for the next year. Simply subtract your target ARR from your last year's ARR and divide by 78. It really is that simple.
Ultimately, the answer to the question: what is a good ROI for a startup, depends on your industry. While the average return on investment is around 7-10%, sectors like Energy (19.99%), and Technology (12.52%) have a much higher average ROI expectancy at the moment.
The goal is to triple ARR for two consecutive years and double ARR for the next three years. This kind of growth skyrockets a business to $100M ARR. However, most SaaS startups take over two years to make $1M ARR. High-achieving SaaS startups, on the other hand, could reach that figure within as little as 9 months.
According to research, less than 10% of all startup businesses reach their million-dollar annual revenue. Furthermore, less than 1% of these companies hit their $10 million mark in annual revenue (Only . 4% of SaaS startups reach $10 million).
What Is a Good ARR Multiple? This depends on the SaaS company's sub-niche, but some general industry benchmarks exist to determine a decent ARR Multiple. In Q1 2023, the multiple for U.S SaaS companies is 6.7x. That means the multiple could be from 3x to 15x of annual revenue.
The ARR growth rate is an excellent indicator of whether your business is growing and thriving or not. Your SaaS business's ideal ARR growth rate is between 20% and 50%. Why? Under 20%, your company isn't growing fast enough to become a successful business in the long term.
Rule of 40 Definition: In Software as a Service (SaaS) financial models, the “Rule of 40” states that a company's Revenue Growth + EBITDA Margin should equal or exceed 40% to be considered “healthy”; companies that exceed it by a wider margin may be valued more highly.
The expectation is that your business is generating revenue at Series A, often in the range of $2 million to $5 million of ARR. But growth trajectory matters more than the precise number.
Only 4% of companies ever earn $1M ARR : r/startups.
One of the most common ones has been some variant of: ~$1 million in annual recurring revenue (ARR) is what you need for a successful Series A in a SaaS business. This rule has been popularized by all of your favorite SaaS thinkers.
Their research of private SaaS and Cloud companies identified 160 private SaaS companies globally with more than $100m in revenue. All 160 companies achieved $100m ARR in less than fifteen years; 90 of them achieved that milestone in less than ten years; and 9 in less than 5 years.
The longer sales cycles resulted in about 2–4 years to attain $1M ARR. To achieve this milestone meant a SaaS company had to learn, among others: Achieve product/market fit. Develop the ability to identify new groups of prospects.
A venture that earns $1 million per year in revenue, for example, could have a multiple of 2 or 3 applied to it, resulting in a $2 or $3 million valuation. Another business might earn just $500,000 per year and earn a multiple of 0.5, yielding a valuation of $250,000.