A new report claims Software-as-a-Service growth has slowed following the boom during COVID-19 lockdowns.
Paddle’s report found that many companies were unable to maintain exponential growth levels in 2021 – but its data, sourced from thousands of companies in 84 countries, also revealed the ‘Outliers’ which bucked the trend.
In 2020, SaaS businesses’ revenue grew on average by 78%. As a result, the market is now worth an estimated $145bn – up from $85bn in 2018.
The report said the majority of companies managed only to maintain their newly-increased revenue in 2021, however, rather than building on the previous year’s success.
Overall, the SaaS companies surveyed recorded an average revenue growth of 32% in 2021, a decline of 46% from the prior year. Moreover, the outlook for 2022 remains uncertain, with only half (51%) of businesses surveyed expecting to hit their ARR targets this year.
The research identified the three key growth levers of SaaS businesses that have managed to maintain high growth rates throughout 2020 and 2021, by examining these so-called ‘Outlier’ firms. These companies remained agile during the pandemic, experimenting with new tools and approaches as well as capitalising on opportunities presented by a remote-first world to pursue global strategies.
The fastest-growing SaaS firms were those that reconsidered their pricing and experimented with dynamic and usage-based models. 40% of companies that regularly alter their pricing report a 25% higher increase in ARR as a result.
However, the majority of businesses still don’t have a strategy in place around pricing optimisation or even consider pricing as a growth strategy. Over 20% of SaaS firms haven’t changed their pricing at all within the last five years, and almost 30% have no set schedule for pricing reviews.
Another ‘Outlier’ is new growth models. Companies that bucked the traditional sales-led growth model also fared better.
Those that adopted a product-led approach grew by 7% more than those with other strategies. There are also signs that product-led growth is becoming the dominant model: 79% of software sellers surveyed by Paddle said they describe themselves as primarily product-led.
Those with a purely sales-led growth (SLG) approach saw 8% lower growth in 2021; a product of the ‘Zoomification’ of the sales cycle, the impact of reduced travel on in-person field sales, and elongated buying cycles.
Investing in true localisation was also key. SaaS firms that invested in localising their offering to sell internationally also grew more quickly: companies accepting payments in at least two currencies grew 13% faster in 2021 than those with only one currency option.
Companies accepting payments in over 25 currencies saw 25% higher growth than those with only one. Companies with at least one alternative payment method available grew 22% faster than those without one.