The 2021 State of Independent SaaS
FROM THE TEAM AT
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This report was produced with the generous support of our partners, Hey and Stripe.
Introduction 2 1. The Founders 3 Key Insights 4 Quantity 5 Prior Company 6 Peak Revenue 6 Demographics 7 Gender 7 Race 7 Age 7 Working Hours 8 2. The Companies 9 Key Insights 10 Headcount 11 Funding 12 Funding Rounds 12 Funding Amount 13 Funding Sources 14 Idea Origin 15 Idea Validation 16 First Paying Customer 17
3. Pricing 18 Key Insights 19 Time Structure 20 Lowest Monthly Tier 21 Free Trial 22 Credit Card Up-front 23 Forever-free Plan 24 Setup Fee 25 4. SaaS Metrics 27 Key Insights 28 MRR 29 Recent Growth Rate 30 Visitor to Trial with Credit Card 31 Visitor to Trial without Credit Card 32 Trial-to-Paid with Credit Card 33 Trial-to-Paid without Credit Card 34 Revenue Churn 35 Lifetime Value 36 5. Marketing 38 Key Insights 39 Customer Roles 40 Ideal Customer 41 Advertising Payback 42 Google Ads 43 Social Media Monthly Ad Payback by Platform 44
6. Growth 45 Key Insights 46 Founder Count vs. Growth 47 Prior Peak vs. Growth 48 Founder Hours vs. Growth 49 Ideal Customer 50 Monthly Price vs. Growth 51 Forever-free vs. Growth 52 Credit Card vs. Growth 53 Lifetime Value vs. Growth 54 NPS Score vs. Growth 55 Funding vs. Growth 57 Funding Amount vs. Growth 58 Thank You 59 Appendix: Methodology 60
INTRODUCTION
WHY GATHER AND SHARE THIS DATA?
Welcome to the second annual State of Independent SaaS!
This journey is difficult, and as founders we are often forced to make difficult decisions with incomplete information. The goal of this report is to provide our industry with rules of thumb, and provide you with the data you need to make better decisions as you grow your company.
For nearly a decade MicroConf has helped startup founders grow faster through access to world-class experts, and the world’s most trusted community of ambitious, bootstrapped and mostly bootstrapped founders. MicroConf has become the mothership for founders like yourself looking to learn and share strategies, tactics, advice, and inspiration. The beauty of creating this second report is our ability to draw comparisons from one year to the next. While the overall structure is very similar to last year, you’ll notice we’ve drawn comparisons wherever the data deviated to a point that it became interesting. In addition, we’ve mixed up the visuals in many areas from simple bar and pie charts to now include word clouds and micro-infographics. The idea is to optimize the presentation of this information to help you understand it at a deeper level. This all lines up with our mission to help you be successful, faster.
After introducing the first report in 2020, the world experienced major turbulence as a result of COVID-19. This 2021 report helps us quantify how the world of Independent SaaS responded to new economic and business norms. In the pages that follow, you’ll see a number of data points that reflect a changing world; and many more that show the consistency and persistence of independently-funded SaaS founders. Onward!
ROB AND THE MICROCONF TEAM
1. The Founders
In this section we look at the founders who run these SaaS companies. How many started each company, prior startups they’ve launched, and demographic information.
EXPECTED
KEY INSIGHTS
UNEXPECTED
· 56% of respondents are single founders. More than 90% are one- or two-founder teams. This lines up with our experience of the independent SaaS space.
· Only 25% of founders work a “standard” 40-49 hour week. Almost half work 10-39 hours, presumably by choice (4-Hour Workweek style) or due to a day job.
· Virtually identical to last year, 6 in 10 founders have started a prior company.
· Overall, founders worked fewer hours per week this year. One might attribute this to the remote schooling caused by COVID-19, with many parents needing to effectively homeschool their children during their workdays.
· Diversity continues to be an issue, but the numbers are slowly improving: 13% of founding teams include a non-male founder (up from 11% last year) and 23% include a non-white founder (up from 21%).
1.1 THE FOUNDERS
How many founders started your company?
56.35%
35.67%
One
Two
5.21% Three 2.77% Four +
The 2021 State of Independent SaaS 5
1.2 THE FOUNDERS
Before founding your current company, did you start a prior company?
60.07% Yes
At your previous company, what was the peak monthly revenue achieved at any time during your company's operation? None 12.91% Less than $9,999 / mo
37.09%
39.93%
$10,000 – $29,999 / mo
21.15%
No
$30,000 – $99,999 / mo
12.91%
$100,000 – $249,999 / mo
8.52%
$250,000 – $999,999 / mo
4.67%
$1,000,000 + / mo
2.75%
The 2021 State of Independent SaaS 6
1.3 THE FOUNDERS
Demographics
Among the founders of your company, which of the following age categories are represented?
Among the founders of your company, which of the following racial categories are represented?
Among the founders of your company, which of the following gender categories are represented?
Under 18 years old
0.14%
White 87.09%
Male 96.37%
18–19 years old
0.28%
Indian or South Asian
7.95%
Female 12.05%
20–29 years old
12.10%
Latin American or Hispanic
5.13%
Non-binary 0.99%
30–39 years old
47.46%
Asian 4.64%
40–49 years old
30.67%
Middle Eastern
4.30%
50–59 years old
8.39%
Black or African-American
2.32%
60+ years old
0.96%
Other 2.15% Native Hawaiian or other Pacific Islander
0.66%
American Indian or Alaskan Native
0.50%
The 2021 State of Independent SaaS 7
1.4 THE FOUNDERS
In a typical week, how many hours do you personally work on your company?
30%
2020 2021
25%
20%
15%
10%
5%
0% Less than 10 hours
10 to 29 hours
30 to 39 hours
40 to 49 hours
50 hours or more
The 2021 State of Independent SaaS 8
2. The Companies
This section covers the companies themselves, including: team size, funding, idea validation, and more.
EXPECTED
KEY INSIGHTS
UNEXPECTED
· Independent SaaS companies tend to have low headcounts, with 37% having no employees and another 37% four or fewer. This speaks to the early-stage of many respondents, but also to the capital efficiency of SaaS.
· Less than half of these SaaS business ideas came from a problem the founder was facing, while 22% built to solve a problem a customer or client was experiencing, and 12% to remedy an experience at the founder’s day job.
· 14% of respondents have raised at least one round of funding, up from 12% last year. This is in-line with observations that funding is becoming more accessible to bootstrappers through founder-friendly alternatives like MicroConf’s TinySeed accelerator and Indie.vc.
· Validation is on the rise! Only 16% of founders did not validate their business idea before building, down from more than 30% last year.
· The largest group of founders (38%) built a prototype or MVP to validate their idea. This feels in-line with common startup advice, though one might argue this number could easily be higher.
· Only 4% used a landing page “smoke test” to validate, a tactic that was once popular due to mentions in The 4-Hour Workweek and Start Small, Stay Small. · Approximately 23% of respondents have been running their business for 5-10 years (down from over 25% last year). This is still longer than expected given the relative newness of SaaS, and the high chance a startup fails in its first one or two years.
2.1 THE COMPANIES
In addition to you, how many full-time or contract employees currently work at your company?
40%
35%
30%
25%
20%
15%
10%
5%
0% None (sole employee)
1 to 4
5 to 19
20 to 49
50 or more
The 2021 State of Independent SaaS 11
2.2 THE COMPANIES
Have you raised funding for this company?
14.31% Yes
How many funding rounds has your company raised? One 75.95% Two 11.39% Three 6.33% Four +
6.33%
85.69% No
The 2021 State of Independent SaaS 12
2.3 THE COMPANIES
Since your company’s founding, how much outside funding have you raised?
70%
60%
50%
40%
30%
20%
10%
0% Less than $100,000
$100,000 to $499,999
$500,000 to $999,999
$1,000,000 +
The 2021 State of Independent SaaS 13
2.4 THE COMPANIES
Which of the following best describes the source or sources of funding?
25%
20%
15%
10%
5%
0% Founding team's household resources
Friends & Family
Traditional Angels
Indie Funding
Venture Capital
Accelerator
Debt
Other
The 2021 State of Independent SaaS 14
2.5 THE COMPANIES
Which of the categories below best describes how you developed the idea for this product / company?
22.10% A problem my customers or clients were experiencing
44.76% A specific problem I was experiencing
12.55% An experience at my day job
10.67% 0.19% I purchased this business
8.24% 1.50%
A problem a friend or relative was experiencing
Research
Other
The 2021 State of Independent SaaS 15
2.6 THE COMPANIES
Which best describes how you validated your original business idea?
40%
35%
30%
25%
20%
15%
10%
5%
0% I didn't validate before building
Asked my audience
Built a prototype or MVP
I copied a competitor
I pre-sold the product
I purchased this company
Landing page smoke test
Verbal commitments
Other
The 2021 State of Independent SaaS 16
2.7 THE COMPANIES
When did you land the first paying customer for your current product / company?
25%
20%
15%
10%
5%
0% Less than 1 year ago
1 to 2 years ago
2 to 3 years ago
3 to 5 years ago
5-10 years ago
More than 10 years ago
The 2021 State of Independent SaaS 17
3. Pricing
In this section we look at everything pricing, including topics like: monthly vs. annual, pricing tiers, free trials, and more.
EXPECTED
KEY INSIGHTS
UNEXPECTED
· 83% of companies offer monthly or annual pricing (or both).
· More than 6% offer metered pricing, and almost 5% offer pay-as-you-go.
· Last year we predicted the practice of not asking for a credit card before a free trial was on the rise, and this year’s report confirmed it. This year, 78% of companies with a free trial did not require a credit card up-front (up from 73% last year).
· 4 in 10 companies have their lowest monthly pricing tier under $30. Less than 1 in 10 have their lowest tier above $250.
· We also expected to see evidence that free trials are on the rise, which was confirmed by the 71% of companies that offered them this year, up from 64% last year. · Similarly with forever-free plans, this year 27% of companies offer one vs 20% last year.
· 1 in 4 companies charges a setup fee to start using their software.
3.1 PRICING
Which of the following best describes the pricing time structure of your product?
46.75%
35.67%
Monthly
Annually
6.60% Metered
2.29% Other
4.49% 2.29%
Pay-as-you-go
Revenue share
The 2021 State of Independent SaaS 20
3.2 PRICING
Which of the following best describes the pricing plan for your base or lowest-cost pricing tier on a monthly basis?
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Free
$1 to $29
$30 to $99
$100 to $249
$250 to $499
$500 or more
The 2021 State of Independent SaaS 21
3.3 PRICING
Do you offer a free trial for your product?
28.77% No
71.23% Yes
The 2021 State of Independent SaaS 22
3.4 PRICING
When a potential customer registers for a free trial, does your company request a credit card number in order to start the trial?
21.60% Yes
78.40% No
The 2021 State of Independent SaaS 23
3.5 PRICING
Do you offer a forever-free plan?
27.05% Yes
72.95% No
The 2021 State of Independent SaaS 24
3.6 PRICING
Do you charge a setup fee?
25.52% Yes
74.48% No
The 2021 State of Independent SaaS 25
4. SaaS Metrics
This section dives into the companies’ SaaS metrics. Data like: monthly recurring revenue (MRR), growth rates, trial to paid conversion rates, and more.
EXPECTED
KEY INSIGHTS
UNEXPECTED
· 15% of companies have flat revenue, neither growing or declining. This is down from 20% last year.
· Monthly recurring revenue (MRR) skewed earlier-stage this year, with quite a few more respondents under $5k MRR than last year.
· The most common month-over-month growth rate is 1-9%, with more than 45% falling into this bucket.
· 7% of founders don’t know their monthover-month growth rate. · 36% of companies who offer a free trial don’t know their visitor to trial conversion rate. This number continues to be surprisingly high (though it’s down from 40% last year). · Nearly 15% of founders don’t know their trial to paid conversion rate (up from 10% last year). · 13% of companies report net negative revenue churn (up from 10% last year). Nearly 1 in 5 companies report churn under 1%!
4.1 SAAS METRICS
What is your Monthly Recurring Revenue (MRR)?
25%
2020 2021
20%
15%
10%
5%
0% Less than $1,000
$1,000 to $4,999
$5,000 to $14,999
$15,000 to $29,999
$30,000 to $49,999
$50,000 to $99,999
$100,000 $250,000 $1,000,000 + to $249,999 to $999,999
The 2021 State of Independent SaaS 29
4.2 SAAS METRICS
What best describes your company’s average Month-Over-Month (MOM) growth rate over the past 3 months?
30%
25%
20%
15%
10%
5%
0% Negative
0%
1% to 4%
5% to 9%
10% to 19%
20% to 39%
40% or more
Don’t Know
The 2021 State of Independent SaaS 30
4.3 SAAS METRICS
If you offer a free trial and ask for a credit card up front, what percentage of your website’s unique visitors start a trial?
35%
30%
25%
20%
15%
10%
5%
0% Less than 1%
1% to 2%
3% to 5%
6% to 10%
11% to 20%
20% or more
Don’t Know
The 2021 State of Independent SaaS 31
4.4 SAAS METRICS
If you offer a free trial and don’t ask for a credit card up front, what percentage of your website’s unique visitors start a trial?
40%
35%
30%
25%
20%
15%
10%
5%
0% Less than 1%
1% to 2%
3% to 5%
6% to 10%
11% to 20%
20% or more
Don’t Know
The 2021 State of Independent SaaS 32
4.5 SAAS METRICS
For prospects that start a free-trial with a credit card up-front, what percentage become paying customers?
30%
2020 2021
25%
20%
15%
10%
5%
0% 1% to 9.9%
10% to 19.9%
20% to 39.9%
40% to 49.9%
50% to 59.9%
60% +
Don’t Know
The 2021 State of Independent SaaS 33
4.6 SAAS METRICS
For prospects that start a free-trial without a credit card up-front, what percentage become paying customers?
25%
20%
15%
10%
5%
0% Less than 1%
1% to 5.9%
6% to 10.9%
11% to 15.9%
16% to 19.9%
20% to 29.9%
30% +
Don’t Know
The 2021 State of Independent SaaS 34
4.7 SAAS METRICS
Over the past 3 months, what was the average monthly revenue churn?
20%
15%
10%
5%
0% Net Negative Churn
0% to 0.9%
1% to 2.9%
3% to 5.9%
6% to 9.9%
10% to 14.9%
15% +
Don’t Know
The 2021 State of Independent SaaS 35
4.8 SAAS METRICS
Which of the following best describes your average Customer Lifetime Value (LTV)?
25%
2020 2021
20%
15%
10%
5%
0% Less than $249
$250 to $499
$500 to $999
$1,000 to $1,999
$2,000 to $4,999
$5,000 +
Don’t Know
The 2021 State of Independent SaaS 36
5. Marketing
This section covers several topics around marketing, including: ideal customers and the top advertising platforms.
EXPECTED
KEY INSIGHTS
· Nearly half of companies indicate their ideal customer is a business with less than 50 employees. · 41% of companies don’t advertise. · Half of companies that advertise run ads on Google or Facebook.
UNEXPECTED · 8% of companies sponsor events. · Only 2.4% of companies that advertise use online display ads (down from 4% last year). Only 2.5% advertise on Twitter (down slightly from 3% last year). · Almost 40% of companies that advertise report a 1-4 month payback on their Google and Facebook ad spends. · More than 25% of companies don’t know their payback period for either ad network.
5.1 MARKETING
What are the most common roles your customers hold?
Freelancers / Agencies
Marketing HR
Other
Consumers
Developers / IT
Founders / CEOs
Operations and Support Aspiring entrepreneurs
Sales
Admin Staff
Accounting
The 2021 State of Independent SaaS 40
5.2 MARKETING
Which of the following categories best describes the ideal customer for your company?
30%
25%
20%
15%
10%
5%
0% Aspiring Entrepreneurs
Businesses (1 to 9)
Businesses (10 to 49)
Businesses (51 to 249)
Businesses (250 +)
Consumers
Government
Non-profits
Other
The 2021 State of Independent SaaS 41
5.3 MARKETING
What advertising activities do you believe have the biggest impact on growing revenue?
Other
Google AdWords
We don’t run ads Online display advertising
App store Ads
LinkedIn Ads
Offline Ads
Other online advertising
Facebook Ads
Event sponsorship
Twitter Ads
The 2021 State of Independent SaaS 42
5.4 MARKETING
Google Ads Monthly Payback
40%
2020 2021
35%
30%
25%
20%
15%
10%
5%
0% Less than 1 month
1 to 4 months
5 to 8 months
9 to 17 months
18 + months
Don’t Know
The 2021 State of Independent SaaS 43
5.5 MARKETING
Social Media Monthly Ad Payback by Platform
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Less than 1 month
1 to 4 months
5 to 8 months
9 to 17 months
18 + months
Don’t Know
The 2021 State of Independent SaaS 44
6. Growth
This section looks at how several factors correlate to revenue growth. Recall that correlation does not equal causation. Just because two factors move in lock-step, does not mean that one is causing the other.
EXPECTED
KEY INSIGHTS
· In line with expectations, in general the larger the business a startup is selling to, the faster the revenue growth. · For the most part, higher prices and higher lifetime value both correlate strongly with faster growth. · Companies that raised more funding grew faster. One can imagine this is the case for several reasons: · Companies that are growing faster have the ability to raise more money. · More funding can translate to a larger team size, with more people focused on growing the business. · Founders who raise funding focus on faster growth, whereas founders who self-fund may elect not to. · There is a strong correlation between more hours worked by a founder and stronger revenue growth.
UNEXPECTED · More founders correlate with higher growth, except for a substantial dip with 4+ founders. · Free trial vs. no trial and free plan vs. not have little correlation with revenue growth. · We found either very little, or unexplainable, correlations with Net Promoter Score (NPS), churn, and growth. · Asking for a credit card before a trial has little correlation with revenue growth.
6.1 GROWTH
Founder Count vs. Growth One would likely expect more growth with more founders. Perhaps the drop off above three founders shows the challenges of communicating with a larger team early in a product’s life.
$2,500
MRR Growth / Month
$2,000
$1,500
$1,000
$500
$0 One
Two
Three
Four +
The 2021 State of Independent SaaS 47
6.2 GROWTH
Prior Peak vs. Growth Few surprises here. In general, the more money a founder’s prior company made, the faster their next company grew.
$3,500
$3,000
MRR Growth / Month
$2,500
$2,000
$1,500
$1,000
$500
$0 None
$1,000 to $9,999
$10,000 to $29,999
$30,000 to $99,999
$100,000 to $249,999
$250,000 to $999,999
$1,000,000 +
The 2021 State of Independent SaaS 48
6.3 GROWTH
Founder Hours vs. Growth These results show a pronounced correlation of faster growth with more founder hours worked. This could be because more hours means they ship faster, or because successful companies that are growing quickly motivate their founders to invest more of their time.
$2,000
MRR Growth / Month
$1,500
$1,000
$500
$0 Less than 10 hours
10 to 29 hours
30 to 39 hours
40 to 49 hours
50 hours or more
The 2021 State of Independent SaaS 49
6.4 GROWTH
Ideal Customer This data generally fits common MicroConf wisdom that if your customers are larger companies, your growth rate will be faster. This is usually because larger companies are less price sensitive and churn far less often than consumers or small enterprises.
$2,000
MRR Growth / Month
$1,500
$1,000
$500
$0 Consumers
Aspiring Entrepreneurs
Businesses (1 to 9)
Businesses (10 to 49)
Businesses (51 to 249)
Businesses (250 +)
The 2021 State of Independent SaaS 50
6.5 GROWTH
Monthly Pricing vs. Growth These results imply higher price points correlate with faster growth, most noticeably with monthly price points above $500 growing 2-5× faster than the others. We see a curious dip around $250-499 (which also happened last year), and that the existence of a free plan correlates with slightly higher than baseline growth.
$3,000
MRR Growth / Month
$2,500
$2,000
$1,500
$1,000
$500
$0 Free
$1 to $29
$30 to $99
$100 to $249
$250 to $499
$500 or more
The 2021 State of Independent SaaS 51
6.6 GROWTH
Forever-Free vs. Growth The data implies an almost inconsequential increase in growth rate between companies that do and do not offer a forever free plan. Likewise, slightly faster growth from companies with a free trial.
$1,500
MRR Growth / Month
$1,200
$900
$600
$300
$0 Yes
No Free Trial Only
Yes
No Forever-Free Plan
The 2021 State of Independent SaaS 52
6.7 GROWTH
Credit Card vs. Growth These results imply that asking for a credit card before a trial has little impact on a company’s growth rate.
$1,500
MRR Growth / Month
$1,200
$900
$600
$300
$0 Yes
No Do you ask for a Credit Card to start a trial?
The 2021 State of Independent SaaS 53
6.8 GROWTH
Customer LTV vs. Growth Intuitively, a higher customer Lifetime Value (LTV) is correlated with faster growth.
$2,000
MRR Growth / Month
$1,500
$1,000
$500
0 Less than $249
$250 to $499
$500 to $999
$1,000 to $1,999
$2,000 to $4,999
$5,000 to $9,999
$10,000 or more
The 2021 State of Independent SaaS 54
6.9 GROWTH
NPS Score vs. Growth I should also note that we looked at churn rate vs. NPS and found little correlation. Meaning higher NPS did not translate into noticeably lower churn, contrary to intuition.
$2,500
MRR Growth / Month
$2,000
$1,500
$1,000
$500
$0 1 to 19
20 to 39
40 to 59
60 to 79
80 to 99
100 +
The 2021 State of Independent SaaS 55
6.10 GROWTH
Funding vs. Growth Not surprisingly, companies that raised funding grew a little over 1.5× faster than those who did not.
$1,800
MRR Growth / Month
$1,500
$1,200
$900
$600
$300
$0 Yes
No
The 2021 State of Independent SaaS 57
6.11 GROWTH
Funding Amount vs. Growth Following up on the previous correlation, the more funding a company raises the faster it grows. A couple likely explanations: having more funding allows you to grow faster, and companies that are growing faster are able to raise more funding.
$5,000
MRR Growth / Month
$4,000
$3,000
$2,000
$1,000
$0 Less than $100,000
$100,000 to $499,999
$500,000 to $999,999
$1,000,000 +
The 2021 State of Independent SaaS 58
Thank you for checking out the second annual State of Independent SaaS! I hope it serves you well on your entrepreneurial journey.
ROB AND THE MICROCONF TEAM
To stay in the loop on next year’s State of Independent SaaS report and find out more about the world’s most trusted community of bootstrapped and mostly bootstrapped SaaS founders, head to MicroConf.com.
APPENDIX: METHODOLOGY
OVERVIEW
RESEARCH DESIGN
Since 2011 MicroConf has helped startup founders grow faster through access to education from world-class experts, and the world’s most popular community of ambitious, non-venture track startup founders. MicroConf has become the mothership for founders looking to learn and share strategies, tactics, advice, and inspiration.
A web-based survey was sent to nearly 25,000 startup founders in MicroConf’s database. The survey was conducted between October 6, 2020 and October 21, 2020. Only those founders who were over 18, currently operating a company that was generating revenue, and charging recurring fees for their software were able to complete the survey.
The purpose of this survey and report is three-fold: 1. to gather critical information on the behaviors, attitudes and “firmagraphics” of participating members; 2. statistically analyze the collected data and 3. organize and interpret the results in a final report, covering topics from idea validation to marketing approaches to SaaS benchmarks, and more. The founders who completed the survey receive the Marketing Extras bonus section of this report, not immediately available to the larger community.
In total, 673 respondents participated in the survey, with 534 individuals completing the survey. On average, it took respondents 15 minutes to complete the survey. The distribution of responses in each question is presented in this report as well as an analysis of the relationship between company strategies and growth where appropriate. Special thanks to Brittany Ortiz for her hard work analyzing the data for this report. Thanks to Vanda Marasan for her exceptional visual design work on this report.
Thank you!
FROM THE TEAM AT
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