Understanding ARR growth benchmarks is key for setting company goals. Companies that grow faster are typically able to better raise capital, hire, and get press. Below, we both define the ARR growth YoY% metric and explain the rates you need to be at to be top quartile by stage.
ARR Growth Defined
When analyzing annualized recurring revenue (ARR) or ARR growth year-on-year (YoY), it is first important to understand how ARR and ARR growth is calculated:
Comparing YoY ARR growth by company stage
If you are looking to benchmark your company’s ARR growth against other SaaS companies, there are a few important trends to understand:
- High-growth, early-stage companies grow faster than relatively late-stage companies because they’re starting from a lower base.
- As total ARR increases, it’s expected to see a dip in YoY growth %.
- As companies grow from $5 to$10M in value, top businesses tend to grow faster as they upsell to existing customers and increase net dollar retention.
- For companies up to $15M in revenue, 100%+ YoY ARR growth (doubling every year) is required if you want to be in the top quartile globally.
Comparing YoY ARR growth by geography (between the EU and the US)
When comparing US-based SaaS companies to their peers in the EU and the UK, one difference is clear: Despite the growth of the European SaaS sector over the last two years, European companies still lag behind their US peers when they grow to >$3M revenue.
This can be attributed to two realities:
- US businesses have access to a larger initial market. This allows them to expand faster and earlier. The European market is more fragmented, and founders need to cater to different legislative requirements and cultural norms.
- The US benefits from a more experienced tech talent pool. In Atomico’s State of European Tech 2021 report, 21% of European tech leaders said talent is the single biggest challenge facing the sector.
About our data & the SaaS Company Benchmark Report
Whether you’re planning to raise funding or preparing for your worst case scenario, it’s more important than ever to have a razor-sharp understanding of which metrics mark a healthy SaaS business, and what good performance looks like. To learn more about the metrics that determine success and how you stack up to your competitors, check out or SaaS Benchmark Report.
Update: Looking for the latest version? Check out the 2023 Benchmark Report here.
For this report, we analyzed 439 private SaaS companies with $1M to 15M in ARR... The data reflects actual financial performance, sourced directly from the companies’ records. We believe it is the largest dataset of its kind that is based on financial actuals rather than survey data.
We then compared the performance of these private companies against 43 SaaS businesses that went public in 2020 and 2021. Data on public SaaS performance was sourced from their S-1 filings.
For more analyses of important SaaS benchmarks, see our findings on:
