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SaaS is a fast-changing industry. With low barriers to entry and the allure of huge payout, SaaS is fast becoming the gold-rush of the 21st century. But just like prospecting, there are no guarantees. In fact, an estimated 92% of SaaS companies fail within three years.
In order to succeed, you need more than just a bright idea. You need a product-market fit. You need to keep customer acquisition costs below your average lifetime customer value and develop a plan to minimise churn and grow. A big part of keeping customers on-board comes down to keeping customers happy. If you want happy customers, you need to meet customer expectations, and that means staying on top of industry trends.
To help you achieve profitability and growth, we’ve put together a list of the top B2B SaaS business trends that founders need to understand and plan for in the new year.
Growth without profitability is dangerous
WeWork was never the tech business they pretended to be. But there is still plenty that SaaS founders can learn from the WeWork IPO disaster. Lesson number one: profitability needs to come before growth.
Growth is vital for any business and a vital indicator of a company’s success, it’s also essential for long-term survival. If you want to be competitive and remain relevant, you need to grow. So, it’s not surprising that growth remains the strategic priority for businesses of all shapes and sizes. In fact, we think a popular trend set for B2B SaaS companies in the run-up to 2020 is to prioritise growth over profits. But slash and burn growth strategies are unsustainable.
Well-known trendsetters Amazon, have created a dangerous president of growing share value, without increasing profitability. But, Amazon is unique. Not everyone has the funding, vision, market opportunity and capability to take losses at scale in the pursuit of revenue growth.
SaaS founders need to learn from profitability failures and not be tricked into thinking that having lots of users or funding is the same thing as business success.
Freemium vs monetisation
Freemium business models are here to stay. When it comes to SaaS, a lot of users expect to be able to try your product before buying. However, you need to focus on the best routes to monetising your user base.
From the beginning, you need to think beyond simply winning freemium customers and build a roadmap to monetisation. All too often we find founders in a position in which they have a lot of free users, but no revenue. If you are in this state, it’s simply a ‘ticking clock’ until you run out of funds.
For example, Citymapper is one of the most widely used apps in London. However, they haven’t yet monetised their product. This is not to say that they don’t have a plan to do this — but it does call into question the long-term viability of the app.
If you are struggling to monetise an existing user base, or just getting started, here are a few tips for successfully making freemium profitable:
- Have a premium (paid) version of your app. If you don’t have the option for a paying upgrade, you are never going to make any money.
- Segmenting your users by monitoring actions and attributes to target that you can then apply to upselling.
- Set up campaigns, think about adding the benefits and prices of the upgrade into banners, ads or popups.
- Use paywalls to block certain features. This enables you to prove your customer service before users become paying customers. This means that SaaS businesses also need to think about how they can drive revenue and profitability by expanding the suite.
- Make use of emails. This is one of the most common marketing strategies used in the sales process. Try sending emails that include upgrade options or promotions to users on a freemium service.
- Consider and trial a number of monetisation models including pay per use and pay per user.
- Test which options work best and iterate around success. You can then make relevant changes such as changing the price or features that are available to paying customers.
- Conduct pricing research and remain competitive. 72% of SaaS businesses and B2B businesses rework their pricing regularly or semi-regularly
Product-led growth marketing
Product-led growth is a commonly used business method adopted by many SaaS businesses. It focuses on customer acquisition, conversion, retention, and expansion — all primarily driven by the product itself. The focus is to create alignment across the company, from sales and marketing to engineering — based around the product. It enables scalable SaaS business growth.
There has been a massive shift in the way people buy and use software. Tech-savvy B2B customers are now demanding more intuitive, more powerful, more attractive, and more affordable tools than they have used in the past. Broadly, this trend is captured by the term “customer-grade” products within the B2B SaaS space, and it’s a critical trend that you need to understand. The market is definitely rising to meet these demands.
SaaS businesses need to spend a lot of time thinking about how they are going to grow demand for their product without sacrificing the ever-important profitability. Although using freemium as a marketing strategy can be an excellent way to secure ideal customers, it shouldn’t be used without clear upgrade paths. B2B SaaS sales and marketing teams must find a way to give prospective customers a taste of their product while still driving a sale.
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Increasing SaaS spend
The adoption of SaaS products has significantly transformed the workplace. The apps and platforms that B2B customers use have become mainstream. Most teams now want the freedom to choose the right SaaS solution for them. It’s no longer an IT department, centralised decision.
It’s predicted that SaaS spend will increase by 118% in 2020. SaaS businesses need to make sure that they can provide value and provide it quickly. With increased spend on SaaS across all sizes of companies, not all users are going to be digital natives and tech-savvy. B2B SaaS companies must make the onboarding process as frictionless as possible and make sure that their products are easy to manage and navigate.
B2B SaaS has always been a browser-first approach. B2B customers are bound to start taking advantage of mobile-friendly apps, B2B SaaS companies should be too.
The global mobile market within SaaS is predicted to be worth $7.4b (£5.6b) by 2021. B2B SaaS companies need to be mobile-ready and make sure that their products can be used on all devices. Mobile browsing is fast becoming the norm for many users, and it can be frustrating when an application doesn’t work as expected.
SaaS businesses need to ask themselves how their products look and perform on a smartphone. In order to do that properly, you need to think about how your product is used and make sure none of that functionality is lost on a mobile device.
Some steps you can take to get your SaaS products mobile-ready include:
- Create a breakdown of all the tasks that your users may want to perform when using your application on a smartphone.
- Use a responsive design that is able to adapt to different screen sizes.
- Research the features that your users may consider essential.
- Perform analysis to monitor any changes. If your users were more engaged with the previous version it may be best to revert back and try again.
Vertical SaaS specialisation
There are two types of SaaS, vertical and horizontal. Horizontal SaaS solutions usually are incredibly generic and aim to target as many clients and areas as possible. Vertical SaaS seeks to deliver exceptional outcomes to a far more targeted user base.
The majority of original SaaS software started as horizontal and then made a move to vertical. This is because although horizontal SaaS products have a broader target market (commonly referred to as the total addressable market), they face several difficult challenges in their marketing. The broader market makes it hard to target messaging, and a lack of specificity makes it hard to deliver the kind of added-value you need to transform freemium users into paying customers.
Some examples of horizontal SaaS include:
- Ant software that supports labour, marketing, content marketing and sales
Vertical Saas, however, can be tailored to individual business needs and fields. This means that vertical SaaS has a much smaller total addressable market. It’s specialised for areas like retail, construction, logistics and can solve industry-specific problems.
Some examples of vertical SaaS include:
- Retail analytics software
- Health, BI software
- Logistics analytics
More companies are starting to use vertical SaaS. It has multiple benefits that include added business value, increased customer intelligence, and improved data governance. Vertical SaaS offers better flexibility, more opportunities for upselling and lower customer acquisition costs. Overdue B2B categories and niches will be disrupted. The best SaaS businesses will have a keen understanding of their specific industry and be able to meet their needs to take the right approach.
The unbundling of SaaS
Some SaaS businesses make the mistake of thinking that bigger is better for SaaS. But this isn’t always the case. Although many of the ‘quintessential’ SaaS companies are big and address entire markets with a huge number of features, things are starting to change. This kind of ‘total solution’ is often just too much — for both new competitors and many users.
If you think about how a lot of users interact with SaaS, it’s to deliver a very specific outcome. They want integrated and seamless solutions to supply great outcomes. Having a SaaS solution that provides countless possibilities can be overwhelming and unneeded — it can even be too expensive. More and more customers are after a customised experience. This is where unbundling comes into play.
The whole idea behind unbundling is that ‘one size fits all’ doesn’t work. Every business has different needs and therefore requires different SaaS — businesses need to be able to fine-tune products to their needs. This trend is often used in conjunction with vertical SaaS models. Companies who are struggling to find the right SaaS products will definitely welcome an unbundling option. The whole aim is designed to fill a massive gap in the market for companies that find it challenging to find the right solution for them, or want the power to customise the answer they want.
There are now even SaaS businesses on the market with products designed as specific add-ons to an existing solution. This can be done independently, but increasingly is done with white label products — allowing established brands to create an all-encompassing and modular solution.
Looking to deliver a white-label product to an established brand is just one other way you can consider monetising a new SaaS product. More broadly, the trend of unbundling means you don’t necessarily have to worry about providing a ‘holistic’ solution. A highly functional and targeted SaaS tool can be just as valuable to customers and this fits within an industry trend that is likely to continue into the future.
A bright SaaS future
The SaaS industry will continue to develop and evolve for many years to come. The changes that we see now aren’t slowing down. The key for SaaS businesses is to keep up to date with any new trends and try to incorporate them into their existing strategies.
However, to make any of these strategies work for you must ensure that they drive profit. If you always operate at a loss, you will never be able to re-invest and grow your business and product. Moreover, if you are losing money, you don’t have a sustainable model. With that said, the SaaS market only continues to grow. If you keep the right strategies in mind, crunch the numbers and aim for sustainability, the opportunities are there to grab. Get planning and good luck in 2020.