As SaaS revenue growth slows, flexible pricing and localization could save the day

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According to a new report, Software-as-a-service (SaaS) growth slowed in 2021 after a record-breaking pandemic caused by a pandemic.

SaaS companies reportedly saw revenue grow by an average of 32%, down 46 percentage points from the previous year’s growth. The data is published in the new report Outliers: State of SaaS Growth, commissioned by Paddle, a provider of payment infrastructure for SaaS businesses, which is based on a survey of 180 SaaS companies and proprietary data from “thousands of Paddle customers.” .

So while SaaS was a big beneficiary as the world went into lockdown, with companies trying to configure their tech stack for a distributed workforce, Paddle’s report suggests we’re now seeing something of a return to normal growth rates.

“As our report shows, the industry was unable to maintain the growth rate from the first year of the pandemic, and we have seen a correction by 2022,” said Paddle co-founder and CEO Christian Owens.

Recurring Sales

The benefits of SaaS are well known. Building a business around recurring revenue versus one-off or infrequent purchases creates a healthier business model as it relies less on new sales. Gartner has predicted that by 2023, 75% of all direct-to-consumer businesses will offer subscription services, but only a fifth of those will “succeed in increasing customer retention.”

Thus, reducing customer churn and retaining customers is important for any SaaS business to thrive. This is why Paddle’s report identifies the “outliers” from his research — that is, software companies that “continued to thrive because of the slowdown.”

Specifically, the report points to three key “growth levers” shared by the most successful SaaS companies. One is embracing new growth models, including exploring a more dynamic pricing ethos – 40% of companies that change their prices regularly reported a 25% higher increase in annual recurring revenue compared to companies that didn’t. And the survey also found that 20% of companies have not changed their prices in the past five years.

Without experimenting with pricing, companies – especially those in the early stages of their journey – are more likely to charge too little for their product, or simply miss the mark on the true value of their product. There is no uniform SaaS model, which is why companies need to play around with their pricing and figure out what will bring maximum revenue with minimum churn.

According to the report, the most popular SaaS pricing structure among those surveyed was tiered pricing, which is usually something like “basic,” “business,” and “enterprise,” with each tier offering more features incrementally.

What is your pricing model? What is your pricing model? Tiered prices lead the way.

But companies probably don’t want to pay for software they rarely use. And if they use the software more than they expected, they could be saddled with so-called “overruns” penalties for going over a pre-agreed limit. This is why consumption or “use-based pricing” has grown in popularity in the SaaS sphere – it makes more sense for a company to pay for what they actually use, rather than a flat monthly fee or a fee per seat that may additional “hidden costs.

Just a few weeks ago, a usage-based billing platform called M3ter left stealth with $17.5 million in funding, promising a metered pricing engine that will help SaaS companies bypass the “operational headache” of consumer pricing. In fact, Paddle was a launch partner, integrating M3ter into its own product in recognition of the fact that its customers might want to play around with different pricing models.

Remove friction

Aside from dynamic pricing, Paddle’s report also identified “going deep into the customer experience” as a notable growth lever, meaning “removing friction from the buying experience” through self-service options and localization.

While translation to other languages ​​is of course an important part of this, companies that accepted payments in just one additional currency grew 12.7% faster in 2021 than companies that supported a common currency – and companies with support for more than 25 currencies saw a 24 .8% higher growth.

“Besides the language there are three [localization] levers to consider — local currency, local payment methods and local purchasing power,” noted Paddle’s VP for customer success Julika Loecklin. “The combination of these
has a powerful compound effect on growth.”

Elsewhere, another of the key SaaS growth levers Paddle identified is one that’s pretty much relevant to any business: hiring the right people and making the right talent adjustments to match a company’s current growth stage.

“Ask yourself: where are we now versus where we want to be, and how are we going to get there?” Paddle’s head of people, Hanna Smith said. “You don’t always need new skills; career development also plays a major role. Work with managers to find any gaps and discover potential.”

The Outliers: State of SaaS Growth report is available for download.

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