After a period of explosive, pandemic-related growth, economic storm clouds are gathering over the SaaS industry. Venture funding of software start-ups has fallen by 38 percent since the start of the year, while valuations in publicly traded firms are down almost a quarter. Meanwhile, the number of new software customers was lower in May than at any other point over the last twelve months, with cash-strapped customers thinking long and hard about their digital expenditures.
But it’s not all bad news. In fact, as with any downturn, there are opportunities for companies to unlock new growth opportunities — if they’re able to deliver the flexibility, efficiency, and value their customers so urgently need. Here are four ways SaaS vendors can turn the cash crunch into a growth opportunity.
4 Ways SaaS Vendors Can Turn a Cash Crunch Into a Growth Opportunity
- Recognize the shift in customer priorities.
- Deliver pricing flexibility.
- Shorten the path to ROI.
- Use BNPL tools to drive customer value.
1. Recognize the Shift in Customer Priorities
With inflation, interest rates, and costs all up, customers are tightening their purse strings. This cash crunch is, on the face of it, bad news for software providers whose business model is necessarily predicated on convincing customers to pay for their products and services.
Customers’ efforts to reduce their expenses and lower their burn rate will make it harder for SaaS vendors to keep revenues flowing. But diligent software developers can also take advantage of the fact that buyers are now increasingly attentive to their expenses and eager to find efficient ways of getting the products they need without depleting their reserves.
Getting this right starts with recognizing that clients aren’t necessarily less willing to invest in growth — they’re just more judicious about where and how their money gets spent. Savvy SaaS brands can win over customers and gain market share even as more traditional vendors struggle.
2. Deliver Pricing Flexibility
How can SaaS companies secure a competitive advantage amid economic adversity? By focusing on the two things their customers crave when finances are tight: transparency and flexibility.
There’s no telling when the slump will tail off. This is why software buyers are seeking out providers who are upfront about their fees, and who offer some measure of pricing elasticity.
In practical terms, that might mean implementing a cost calculator at checkout to help customers forecast their digital spending or offering a variety of different payment plans: usage-based, per-feature, flat rate with increments, tiered, or a hybrid model. Whatever your specific solution, you need to make sure that customers can tell what your product will cost and that they have options that will fit their needs.
3. Shorten the Path to ROI
Offering clearer, more adaptable payment options isn’t the only way providers can increase the value they deliver during the cash crunch. Even when times are good, SaaS buyers tend to prefer small, ongoing expenses to large upfront costs, even if they wind up paying more over the life of a contract.
As economic conditions deteriorate, this impulse grows stronger. Why? Because when belts are tightened and cash is scarce, buyers are under even greater pressure to secure a speedy return on investment while conserving capital reserves. Software customers are, as a result, more likely to go for products that deliver instant results at an affordable entry price, even if the recurring lifetime costs are much higher.
Therein lies the opportunity for SaaS vendors. As buyers look to reduce their burn rates, software providers have a chance to find new markets for their stickiest recurring services — those that cost little to implement, but make the most money over time.
4. Use BNPL Tools to Drive Customer Value
To drive more value for customers, SaaS vendors should get creative about pricing and explore new strategies that help them go even further to reduce clients’ upfront costs.
For instance, buy now, pay later (BNPL) tools are already ubiquitous in the consumer space, but they’re increasingly also gaining traction in enterprise SaaS. When a vendor adopts a BNPL system, not only do they get instant access to customer payments — crucial as they confront their own cash crunch concerns — but they can more easily win over money-conscious buyers who might think twice about paying for a lengthy contract upfront.
Rise to the Challenge
Of course, nobody wants to see the SaaS sector struggling, and growing a successful business can feel much easier when the industry is awash in cash. But the cash crunch doesn’t have to be a disaster for software brands — and if you play your cards right, it can be an important growth opportunity.
Customers are thinking twice about their digital outlays, and that leaves vendors with less scope to offer business-winning discounts. But amid the economic gloom, resourceful providers can still find a path forward — by taking a fresh look at their pricing and payment strategies and finding new ways to tailor their offerings to their customers’ evolving cash flow needs.