Covid-19 led to a surge in growth for software-as-a-service (SaaS), but many companies were unable to maintain those growth levels in 2021
Software-as-a-service (SaaS) companies saw their revenue growth slow by 46% in 2021 compared to 2020, according to a new study released today by Paddle, the provider of a complete payments infrastructure for SaaS companies. The result of qualitative and quantitative research into SaaS firms from 84 countries, Paddle’s Outliers report charts the key factors driving the industry by leveraging data from thousands of companies.
According to the Outliers report revenue growth for SaaS businesses slowed in 2021 with the majority of companies managing only to maintain their newly-increased revenue, 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. It’s clear that as the impact of the pandemic subsides, software businesses need to change tack to preserve momentum.
Thankfully, Paddle’s research has 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 Outliers’ growth levers
Dynamic pricing – 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 optimization or even consider pricing as a growth strategy.
Over 20% of SaaS firms haven’t changed their pricing at all within the last 5 years, and almost 30% have no set schedule for pricing reviews.
Embracing 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.
In addition, 90% of SaaS sellers surveyed either have a self-serve option or expect to implement one in the near future.
Investing in true localisation – 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.