As SaaS revenue growth slows, agile pricing and localization could be its savior

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According to a new report, software-a-service (SaaS) growth slowed in 2021, following record epidemics in 2020.

SaaS companies reportedly saw an average 32% increase in revenue – a 46 percent-point decline over the previous year. The data is published in the new Outliers: State of SaaS Growth Report, launched by Paddle, a payment infrastructure provider for SaaS companies, based on a survey of 180 SaaS companies and the proprietary data of “thousands of Paddle customers”.

So while SaaS was a major beneficiary as the world went into lockdown, with companies scrambling to adjust their tech stacks for a distributed workforce, Pedal’s report suggests that we are now seeing something to return to normal growth rates.

Christian Owens, co-founder and CEO of Pedal, said: “Our report shows that the industry has not been able to maintain growth levels in the first year of the epidemic, and we have seen an improvement as we move towards 2022.”

Recurring income

The benefits of SaaS are well understood. Building a company on one-off or frequent purchases versus recurring income makes for a healthier business model, although it is less dependent on new sales. By 2023 Gartner has predicted it 75% of all direct-to-consumer companies Will provide subscription services, but only one-fifth of them will “succeed in increasing customer retention.”

Thus, it is important for any SaaS business to thrive and retain customers. That’s why Pedal’s report identifies “outliers” from its survey – that is, software companies that “continue to grow even in the midst of a recession.”

In particular, the report points to the three main “growth levers” that are shared by the most successful SaaS companies. One of them formed Adopting new development modelIncluding the discovery of more dynamic pricing ethics – 40% of companies Which changes their prices regularly 25% more An increase in annual recurring income against what did not happen. And the survey also found that 20% companies Their value has not changed in the last five years.

Without experimenting on prices, companies – especially those in the early stages of their journey – are more likely to spend less on their product, or miss the mark on the true value of their product. There isn’t a one-size-fits-all SaaS model, so businesses need to play with their prices and find out what the maximum revenue is with the least churning.

According to the report, the most popular SaaS pricing structure among those surveyed was tiered pricing, which is generally similar to “basic,” “business,” and “enterprise”, with additional features offered at each level.

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

But companies may not want to pay for software that they rarely use. And if they use more software than expected, they may be in danger of being hit with so-called “average” penalties for exceeding pre-agreed limits. This is the reason why consumption or “use-based pricing” has grown in popularity in the SaaS realm – it makes more sense that the company pays for what they are actually using, rather than the monthly or per-seat fees that May be extra. “Hidden” costs.

A few weeks ago, a usage-based billing platform called M3ter came out of stealth with 17.5 million in funding, with the promise of a metered pricing engine that helps SaaS companies work around the “operational headache” of consumption pricing. Pedal was, in fact, a launch partner who integrated the M3ter into its own product in recognition of the fact that its customers wanted to double with different priced models.

Eliminate friction

Aside from dynamic pricing, Paddle’s report also cites “deepening the customer experience” as a significant growth lever, including “eliminating friction from the shopping experience” through self-service options and localization.

While translating for other languages ​​is of course an important part of this, companies that accept payments in just one additional currency will grow 12.7% faster in 2021 than companies that support a single currency – and companies that support for more than 25 currencies. 24.8% more growth.

“Apart from language, there are three [localization] The levers to consider – local currency, local payment methods and local spending power, ”noted Julika Loecklin, VP of Pedal for customer success. “The combination of these
Powerful combinations have an effect on growth. “

Elsewhere, the other key SaaS growth lever identified by Paddle is one that is very relevant to any business – hiring the right people, and making the right talent adjustments to suit the current phase of the company’s development.

“Ask yourself – where are we now in front of where we want to be, and how are we going to get there?” The head of the pedal people, Hannah Smith said. “You don’t always have the new skills you need; Also comes heavily in career development. Work with managers to find any gaps and spot potential.

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

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