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The SaaS (Software as a Service) industry has grown and thrived significantly over the years, even in the face of significant economic and geopolitical challenges.
Benefits like flexibility, agility, and scalability make SaaS solutions extremely valuable to businesses, particularly in the age of digital transformation. By 2030, experts still predict the SaaS market will be worth a massive $908.21 billion worldwide.
However, the market is beginning to face significant challenges. In 2023, reports showed SaaS growth was slowing, while customer churn rates and contraction were increasing. According to the ProfitWell B2B SaaS Churn index, churn in the industry was 20.5% higher in the first half of 2023 than it was during the same period of 2022.
So, will this be the year of contraction in the SaaS market, and if so, what can companies do about it?
SaaS companies, much like many technology and B2B brands, have faced various challenges and threats in the last few years. Higher interest rates and growing operational costs have prompted many businesses to reduce their budgets for new technologies, and even existing subscriptions.
This issue is likely to continue throughout 2024, as while interest rates are improving, most analysts believe positive changes in interest rates take around 12 months to impact the wider market.
It’s not just higher borrowing costs and interest rates increasing contraction in the SaaS market either. Massive layoffs in the tech landscape, and various other business sectors mean companies are purchasing fewer software licenses, for fewer employees.
Companies aren’t just cutting back on the acquisition of new software solutions, they’re avoiding renewals too. TechCrunch suggests that while some software categories are thriving, others are struggling with higher levels of contraction at renewal, as companies switch to different vendors, consolidate technology stacks, or alter their software priorities.
While it’s difficult to accurately predict how buyer behaviours will change in any market, the evolving SaaS landscape is showcasing some potential trends.
As companies look to reduce their budgets, products with fewer stakeholder champions will likely be the first to go. After that, many organisations may begin to switch to alternative solutions, if they seem to offer the same benefits for a more affordable price. We can expect to see a lot of consolidation. As companies look for more versatile SaaS systems that address a range of issues.
To respond to these changes, SaaS companies may need to implement new strategies, and refocus their priorities. A few key areas worth focusing on include:
In 2024, SaaS companies will need to invest more time and effort into becoming “visible” to their target audience. This means not only implementing new methods to connect with customers in the “awareness” stage but creating a wide range of content and resources to demonstrate the benefits of their products to consumers and help with strategic comparisons.
While content saturation will be a significant issue to overcome this year, SaaS brands can improve their chances of success by creating more personalised, intent-driven content for each of their target segments, throughout every stage of the purchasing journey.
Comparison-focused articles and videos will help buyers understand the benefits of choosing one SaaS solution over another. Video demonstrations, webinars, and visual content will offer companies more in-depth guidance when they’re making purchasing and renewal decisions.
The problematic economy means technology and SaaS budgets are diminishing quickly in various industries. Business buyers are becoming increasingly cautious about how they spend their money, and they’re hunting for the best value possible, even if that means switching to a competitor.
Simply offering products for a lower price than the competition, however, won’t be enough to reduce contraction in the SaaS market. Businesses will need to think more carefully about how they adapt their pricing strategy to suit the needs of different customers and demonstrate value.
This could mean creating a range of different pricing tiers for consumers with specific needs, allowing companies to customise their purchasing strategy more effectively. It could also mean offering discounts and exclusive pricing options to loyal consumers, to increase renewals.
Standard digital marketing strategies, such as creating content optimised for search engines, producing thought leadership articles, and building social media campaigns will remain crucial in 2024. However, SaaS companies worried about the threat of contraction may need to consider branching out into new methods and strategies.
Referral systems, for instance, have proven to be extremely valuable for many SaaS companies. Dropbox’s referral system made it one of the fastest-growing SaaS startups in the world, allowing the company to transform its existing customers into powerful sales resources.
A well-planned referral system can significantly increase your chances of growth, particularly as many B2B buyers will trust recommendations from their peers more than the marketing and sales materials your company uses.
A unique selling proposition has always been important to the success of SaaS brands. However, it’s growing increasingly crucial now that companies are reducing their investment in new technologies. To retain customers in today’s world, you’ll need to outshine the competition in one way or another.
For some companies, this could mean taking advantage of emerging trends, like the rising demand for generative AI and automation tools. Or it could mean creating a more comprehensive SaaS platform that consolidates a number of needs. For instance, you may offer a modular finance solution that includes tools for payment tracking, invoicing, accounting, and more.
Another way to differentiate your SaaS brand is to focus more heavily on the customer experience. Committing to excellent customer service, phenomenal onboarding practices, and customer success will lead to deeper relationships with your target customers. This could help you to activate more champions for your brand in the companies most important to your revenue.
Ultimately, continued contraction in the SaaS market doesn’t just mean that companies are spending less on new solutions and advanced products. It also means the majority of consumers aren’t renewing their subscriptions as often as they once did. The key to success in 2024 for most companies will be focusing on finding ways to reduce churn.
This could mean implementing a more advanced customer success program, designed to ensure you can onboard customers and help them discover value as quickly as possible. It might mean paying closer attention to churn metrics, and finding out why your customers abandon your brand. For instance, they may struggle with setting up certain tools or training new users.
You could even consider leveraging salvage offers for customers seeking to cancel their subscriptions. For example, you could allow users to pause their subscriptions, or move to a lower-priced plan, rather than leaving them to abandon your company outright.
The SaaS market is still growing at a healthy rate, as companies continue to innovate and digitally transform their processes. However, churn and contraction are growing issues for many organisations in a difficult economic environment. The challenges in this landscape are likely to continue moving through 2024, meaning SaaS brands will need to rethink their go-to-market strategy.
Updating your selling proposition, leveraging new marketing strategies, engaging your customers, and focusing on retention will ensure you can survive and thrive in the downturn.
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