Recurring Revenue and Week Over Week Growth

Recurring revenue is incredibly powerful for startups. On the Software-as-a-Service (SaaS) front, recurring revenue gets combined with strong gross margins, strong renewal rates (hopefully!), and strong predictability. Only, it’s incredibly difficult to get the engine going. Paul Graham says growth of 5-7% per week is good (see his Growth essay).

Let’s look at how a 5% per week revenue growth rate looks from a base of $5,000:

• End Year 1 – $63,000 (based on 5,000*1.05^52)
• End Year 2 – $800,000 (based on 63,000*1.05^52)
• End Year 3 – $10,100,000 (based on 800,000*1.05^52)

As an example, Pardot’s revenue growth rate was solid, but no where near those numbers. Is 5% per week growth great? Absolutely. Is it realistic after the first year or two? Not likely. Over time the law of large numbers kicks in and growing 5% per week becomes nearly impossible.

Another way to look at it would be start with 5% per week in year one and then lower to 4% per week in year two, and 3% per week in year three. Here’s how that would look from a base on $5,000:

• End Year 1 – $63,000 (based on 5,000*1.05^52)
• End Year 2 – $485,000 (based on 63,000*1.04^52)
• End Year 3 – $2,250,000 (based on 485,000*1.03^52)

Still a great growth rate, and beyond Pardot’s numbers, but much more reasonable.

The takeaway is to focus on growing at least 5% per week when starting out and to slowly lower the growth rate requirement over time.

What else? What are some other thoughts on recurring revenue and week over week growth?