The Magic of a $5 Million SaaS Run Rate

After Defining a Successful Business several years ago for a Software-as-a-Service (SaaS) entrepreneur, the logical question is “what’s the next revenue milestone for a SaaS company after initial success has been achieved?” Things really start getting interesting once a startup hits the magic $5 million run rate mark. Here are a few reasons why $5 million is so important:

  • Product critical mass – $5 million often represents enough customers that the business will keep growing for several years to come
  • Team – There’s enough scale with 30-50 employees to have depth in each department, yet still move fast
  • Fundraising – Assuming a good growth rate (> 30%), it’ll be easy to raise money as a number of venture and growth equity funds exist with a minimum requirement of $5 million in revenue
  • Industry presence – There’s enough money for a marketing budget that enables attending all the conferences, being covered in analyst reports, and showing up in the key places online (SEO, PPC, etc)
  • Exit opportunities – Many acquirers aren’t interested in small startups, especially ones that are outside their hometown, so $5 million in revenue represents a minimum level where it’s worthwhile to look at acquiring a business

While there’s no exact number, entrepreneurs that reach $5 million in recurring revenue with strong gross margins and a high growth rate have a tremendous number of strong options as well as enough scale to start spending more time on the business instead of in it.

What else? What are your thoughts on a $5 million SaaS run rate being a major milestone for entrepreneurs?

3 thoughts on “The Magic of a $5 Million SaaS Run Rate

  1. Goodmorning David,

    Love to read Your blogs. First thing I do Every morning. But looks like The post of Today is an old one? A Good one though! Could use Some help on my business model, will I even reach The 5 million revenue milestone.

    All The best, see u tomorrow! Andre Noort

    Founder| Wayv | 06-28686849 | | |

    Verstuurd vanaf mijn iPhone

    > Op 13 aug. 2014 om 04:47 heeft David Cummings on Startups het volgende geschreven: > > >

  2. Run rate is of minimal value if it is not the right niche, customers or retention rate. Revenue means nothing…

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