In case you missed it, our CEO, Mike, wrote about Natural Rate of Growth in his weekly newsletter last week. In short, OpenView Labs recently featured a new SaaS metric they are coining “Natural Rate of Growth.” Read the original blog post form OpenView here.
With the emergence of product led growth (PLG) companies there is a need for new metrics. The traditional SaaS metrics and growth rates are becoming out of date.
Essentially, Natural Rate of Growth removes paid channels to calculate growth. As OpenView states, “One way to think about it is how fast a company grows without even trying—before layering on incremental investments in sales and marketing. We’re looking to pinpoint the percentage of your recurring revenue that comes from organic channels and starts with your product.”
The formula to calculate Natural Rate of Growth is pretty simple. We’ve shared a Google Sheet template you can use to get started below:
Natural Rate of Growth is simply 100 (X) Annual Growth Rate (X) % Organic Signups (X) % ARR from Products
- Annual Growth Rate = Simply your ARR growth from year to year
- % Organic Signups = From the OpenView blog post, “An organic signup is any signup that you didn’t have to pay for. These new users come from referrals, organic search, organic social and direct to your website.”
- % ARR from Products = From the OpenView blog post, “We’re looking for how much of your incremental recurring revenue comes from users who started by using the product, whether via a free trial, free product, open source product, freemium version or paid self-service product. Those users who immediately went down a sales-assisted path before getting into the product, for example those who requested a demo, do not count.”
Simple enough. OpenView goes on share benchmarks for what a good, better, and best Natural Rate of Growth looks like.
To give you an idea, Slack’s Natural Rate of Growth is 55%, Zoom’s is 93%, while HubSpot’s is 14%.
Thanks to OpenView labs for creating something new and compelling. We hope the template helps you PLG/SaaS companies.
Remember that market defined metrics can be a great proof point when fundraising and benchmarking your company to other SaaS companies.