It’s estimated that there are over 11,000 software as a service (SaaS) companies worldwide, and this number is expected to grow well into 2021.
For those looking to enter this space, they’re likely to face stark competition as well as near-limitless opportunities. Today’s customers are looking for more convenience, better usability, and greater cost benefits to the tools they use every day, as SaaS companies continue to fill these gaps.
But what about the market—and, ultimately, revenue—potential for brands looking to grow their SaaS company?
In this report, we’re uncovering the latest trends, as well as making data-informed predictions about SaaS growth in 2021.
SaaS Defined
The software as a service model emerged during the 70s and 80s but grew exponentially in popularity during the 90s when businesses needed a way to accommodate more tasks and manage multiple applications with more accuracy, speed, and convenience.
Today’s software empowers businesses to do more than ever before—from managing their own bookkeeping to automating lead generation to handling customer communications and more. There’s no denying that software has made our lives as business owners—and individuals—way easier.
General SaaS Statistics
- The SaaS sector is expected to reach $623 billion by the year 2023.
- The compound annual growth rate for the SaaS industry is around 18%.
- 80% of businesses use at least one SaaS application and 73% of organizations expect nearly all their apps will be SaaS by 2021.
- 88% of business are seriously intending to invest in new SaaS applications within two to three years
- Automation and agility are the key drivers of the SaaS market’s growth.
- 30% of SaaS companies reported that their churn rates increased in 2020.
SaaS Sales and Customer Acquisition Stats
- The average SaaS startup spends 92% of first-year revenue on customer acquisition.
- 48% of Saas Companies have an average contract length of one year. 11% said their average contract length was three years or more.
- In B2B SaaS, one survey found that on average, 5.4 people sign off on each purchase within the organization.
- The median cost to acquire $1 of annual recurring revenue from a new customer is $1.32.
- Upselling to existing customers is one of the best ways to drop costs ($0.71 per $1 ARR)
- SaaS companies that spend more on sales and marketing generally grow at a faster rate than those that spend less (as a % of revenue).
Examination of SaaS Trends
The SaaS industry growth statistics above reveal a lot about the state of the industry, but they don’t paint the full picture. Data + Analysis = Application. So, here is our examination of the latest SaaS statistics and what they mean for your business
Search Trends
Google Searches for “software as a service” and “SaaS” have grown exponentially since the early 2000s. This reveals that more and more people—perhaps both consumers and businesses—are showing an increasing interest in what the SaaS model is, what software exists, and/or what it takes to start a SaaS company.
Google Search data can only tell us so much, though. It can’t explicitly reveal the intention behind the search, whether the searcher was a consumer or a business owner, or what was done with this information. But, it does indicate that there’s been an increasing interest, which might reveal more opportunities for brands in terms of marketing and revenue potential.
An increase in the number of searches for these terms translates into higher search volume for specific keywords. SaaS companies looking to maximize their search engine optimization (SEO) efforts to generate more organic traffic will be happy to know that people are actively searching for software like theirs.
SEO is a smart method for driving more organic traffic and leads. However, it’s important to focus on the growth metrics that matter so SEO is not a singular marketing strategy. For example, our recent case study of working with Revitalash Cosmetics explores the importance of also optimizing for ROI.
Revenue Growth
There’s often a huge misconception in the business space that any given market is like a pie, where some brands grab a bigger piece and others grab a smaller piece. But with the SaaS industry growing exponentially, the opportunities for SaaS brands to grow are not finite.
Often, SaaS brands are active in creating demand; speaking to consumers’ hidden struggles, and presenting new, innovative solutions. Just because there is not an existing demand for a certain software, doesn’t mean one can’t emerge through brand awareness and killer marketing campaigns.
With this in mind, B2B SaaS companies should continue to think outside the box, both tapping into the existing market and, potentially, creating one of their own. That way, they’re able to maximize their revenue potential without being stifled by more established competitors.
Competition
11,000+ SaaS companies worldwide is a large number, but it becomes less intimidating when you consider that many of these are targeting different demographics. You might find that your existing competitor pool consists of 3-10 companies, meaning your chances of rising to the top are much greater than competing against all SaaS companies as a whole.
For example, your typical business owner likely needs bookkeeping software, lead generation software, and project management software. If your B2B SaaS company provides one of these, you are not a direct competitor to the other categories. This is great news.
Exponential SaaS growth doesn’t necessarily mean more competition. Ultimately, the brand that understands the target customer best, wins. Conducting market research to understand what your ideal customer wants, needs, and is struggling with will help you put your business ahead.
Churn Rate
The standard churn rate for SaaS companies is 5-7% annually, though we are seeing a continuous upward trend. So, it’s necessary to examine why this may be the case. Of course, limited information leads us to speculate, and the specific cause may vary from business to business.
Some possible culprits include:
- Competition. If a new, more applicable product comes onto the market, existing customers may be inclined to choose that option over their existing software.
- Affordability. Two software companies that offer essentially the same product are often left to compete on price. Customers may be looking to get the same features at a cheaper price.
- Customer Support. Again, two SaaS companies may provide a similar service, but customers today expect personalized and accessible support. Companies that offer ongoing support, live chat, etc. are more likely to keep customers on for longer.
- Lack of Results. Not being able to deliver the desired result to the customers gives them a reason to go with another option. Your software should do what it promises to do.
- Lack of Scalability. As businesses grow, they may demand more from their software. Without the opportunity to scale, they’re likely to go with a more accommodating provider.
Churn rate is just one of many metrics you should be measuring in your SaaS business. In fact, churn is not the strongest indicator of business success. Other SaaS key performance indicators (KPIs) like growth rate, customer acquisition cost (CAC), and CAC:LTV are perhaps the best yardsticks for growth.
Automation
The emergence of Artificial Intelligence (AI) has made personalizing the user experience and automating tasks easier than ever before. Automation has helped businesses reach more customers faster, streamline their business processes, offer more tailored customer support, and expand their brand reach across platforms.
SaaS brands would be smart to adopt more automation tactics, not only in terms of how their own software performs, but in their marketing as well. Marketing automation makes it easier for SaaS companies to hone in on their target audience, run optimized campaigns, generate leads on autopilot, streamline the sales process, and much more.
Beyond that, customers appreciate the speed, security, and convenience that automation has to offer. Heavy, hard-to-use software is quickly becoming a thing of the past.
Our SaaS Growth Predictions for 2021
As a demand generation agency that serves B2B SaaS companies, we’ve gained first-person insight into how SaaS companies are operating now and where the industry is going. While reports on 2020 SaaS growth are still in the works, we’re eager to make some predictions on what we expect (or hope) to see in 2021.
1. Existing “sales-led” marketing strategies will increasingly become obsolete.
The prevailing sales-led, go-to-market marketing tactics will decline substantially, as marketing teams will be expected to deliver some of their largest contributions to the marketing pipeline and revenue ever. This will cause marketing teams to over-correct and double down in the wrong areas by focusing on tactics when they really need to focus on strategy.
2. Businesses are going virtual.
Events and conferences will never be the same, with a majority of conferences staying virtual or never coming back. Marketing teams need to adjust to this new normal, which presents a tremendous opportunity to re-think the event space without the constraints of a physical conference. I'm amazed at how many marketing teams run a virtual event and make sure their virtual booth looks like a real booth. You have no constraints.
3. It all comes down to building real demand.
Marketing teams that are adjusting to brand or ABM driven campaigns will struggle at the end of the year to quantify their impact and justify their ad spend. Building demand is the key to driving real, tangible growth and this starts with building a brand narrative that's giving rise to your buyers needs and creating that demand.
Resources for B2B SaaS Companies
Now’s never been a better time to invest in your SaaS business’s growth. With the market growing steadily every day and new opportunities on the horizon, your company is in a great position to take advantage of this momentum and maximize your revenue.
If you’re wondering how to grow your SaaS business in 2020, get started with some of our free resources: