Even as the new year progresses and we move to the end of the first quarter, the economy is still vacillating between a bear market and potential growth. Unfortunately, experts believe the bear may win out this year. This volatile market presents obstacles for startups that lack experience, resources, and the expertise of industry giants. But there is still strong opportunity for SaaS companies looking to thrive in 2023, given that publicly traded companies in the SaaS market are estimated to reach $195 billion this year.
Emerging software solution companies must adequately prepare to enter this unstable landscape and implement smart growth strategies to achieve sustainable growth and success. Let’s look at a few SaaS industry industry predictions as well as insights as to how SaaS startups can get ahead of anticipated obstacles.
Implement Sustainable Growth Methods
Even though the digital ecosystem continues to evolve, digital platforms will still be the link binding organizations together. In fact, recent reports state that the SaaS market is growing 20.6% YoY as more and more businesses are implementing SaaS tools to achieve goals and create efficiencies. Business leaders are recognizing the benefits of SaaS tools such as cost efficiency, time management, scalability, and accessibility, all of which can be critical to maintaining a sustainable business, especially in uncertain times..
To be consistently profitable, SaaS companies should look to implement sustainable growth models and adopt a profitability and growth point-of-view. This “ProGro” mentality is an operating principle for early-to-mid-stage SaaS startups that affirms the value of growth and profitability. And in the bear market we’re currently facing, sustainability, customer engagement, and the ability to communicate a business’ value are key principles of the ProGro method.
Test Pricing Models Early On
To truly understand and begin to adopt the ProGro way, SaaS startups need to start testing which pricing model will be a best fit for their company as early as possible. All too often startups fail to spend enough time focusing on pricing strategy that truly articulates their values. Don’t price based on what others are doing; instead, consider what value you deliver to the customer. Price your offerings accordingly, and structure pricing for the product you offer and market you’re in.
Just because consumers aren’t paying yet doesn’t mean the product isn’t valuable. It might mean the pricing tiers aren’t clear. And pricing is the primary proxy for knowing whether or not you’re delivering value. Business leaders should consider different types of pricing models as it’s critical to choose the right strategy early on. This prevents the loss of funds from improper testing. A few to consider are:
- Featured-based: Per feature pricing tiers by assigning a value to the functionality available at each tier
- Freemium: A tiered pricing strategy where the paid packages are supplemented by a free, entry-level tier
- Metered Usage: AKA pay as you go; Usage-based pricing related the costs of the product to the amount it’s being used
- Per user/seat: Most popular for SaaS – this allows consumers to pay per user and increases with each additional seat
It’s no surprise that companies estimate that 70% of apps they use are SaaS-based, and this percentage is only going to increase. The benefits of SaaS tools combined with a ProGro strategy allow business leaders to stop getting caught up in the never-ending loop of raising money just to sustain growth for the next round of funding and shift their priorities to focus on profitability, growth, and agility.
Optimize Ad Spend
There’s an increased need for optimizing ad spend in a period of economic uncertainty – especially when it comes to small businesses and tech startups. And not only is the economy fluctuating, but so are consumer sentiments and spending habits. This creates tension as SMB marketers have to think outside the box to create strategies that will effectively reach their consumer base.
SaaS business leaders should start by evaluating their current strategies and identifying areas of opportunity and, more importantly, areas of improvement. Ask questions to better understand their consumer base and preferences such as, “Is everyone on this list really the best fit for my brand or product?” This will provide direction on whether or not target audiences need to be narrowed down to turn into a conversion. Do the research and conduct surveys to learn customers’ preferences, behaviors, and motivations. Precise targeting can lead to higher engagement, which is a crucial part of generating conversions.
To further optimize advertising spend, SaaS companies should look into their cost-per-click and cost-per-conversion to evaluate which ads are driving the most (or least) engagement. Are the most engaging ads also the biggest revenue generators? If not, take steps back to evaluate the targeting approach. More personalization might be the solution. Look for tools and platforms that can help your business effectively run advertising campaigns and continue to drive in customers.
Finally, SaaS startups should continue to lean on automation when it comes to advertising to justify ad spend because it allows for higher quality leads, increased conversion rates, and a better customer experience.
Utilize Smart Tech Solutions
As a business continues to grow and leaders develop a stronger understanding of their customer base, they can begin integrating with other smart tech solutions to benefit their specific needs or goals. Many businesses are already doing this with reports stating that organizations use an average of 110 SaaS tools, a clear indication of the growing market size that feeds businesses’ higher demands.
The integration world is complex, and successful companies are those whose products and tools can be used in association with others. So, it’s crucial that SaaS providers adapt their current offerings to be used in tandem with other tech companies’ tools. SaaS companies need to understand how their offerings can help streamline complex workflows within different industries. When doing user research, don’t just test your own product. Explore and understand how a customers uses your product in association with the other adjacent and complimentary products they use to run their business efficiently.
For SaaS startups, now is the time to closely monitor industry trends and changing consumer preferences to get a few steps ahead of the game. The tools and solutions provided by these startups can make a night and day difference for businesses to create more efficient workflows.
As we move toward the second quarter of 2023, new obstacles will continue to present themselves, but so will opportunities for growth. The economy and marketing industry is constantly evolving and SaaS startups must commit the time and research into new strategies that can help both internally and externally. To get ahead of these obstacles, look to implement sustainable growth models, strategies to optimize ad spend, and how to leverage smart tech solutions.
Joe Hyrkin is the CEO of Issuu, a digital publishing platform that allows creators to share, discover, and monetize digital magazines, catalogs and other publications with a global audience.
Startup stock image by Gorodenkoff/Shutterstock