According to Altimeter investor Jamin Ball, median net retention at public SaaS companies has dropped from between 120% and 121% in Q1 2021-Q4 2022 to 111% in Q2 2023, a 45% fall over two quarters. This trend suggests that at least half of all public software companies were under the 111% mark. The combination of lower net retention, slowing growth, and many SaaS companies still operating at a loss raises questions about the viability of the software business.
Key takeaways:
- New data reveals that net retention at software companies has been halved in recent quarters, contributing to the slowdown of revenue growth at tech firms.
- Net retention is a measure of how much existing software customers spend on a product over time, with a metric over 100% indicating that customers are spending more.
- According to Altimeter investor Jamin Ball, median net retention at public SaaS companies has declined from between 120% and 121% in Q1 2021-Q4 2022 to 111% in Q2 2023, a 45% fall over two quarters.
- The decline in net retention makes the SaaS economic model riskier and makes it harder for software companies to lose less money and keep expanding simultaneously.