SaaS Industry Trends to Look for in 2020
The Software as a Service (SaaS) industry innovates incredibly fast. And if you want to ride that wave, you need to know what’s coming over the horizon. We work with a lot of SaaS companies and we’ve used our insight and experience to share some of the main industry trends.
If you aren’t already focusing on these areas, it’s time to build them into your business strategy or product roadmap.
The Current State of the SaaS Industry
Before we start gazing into the crystal ball, it’s worth reflecting on where the SaaS industry is right now. The website SaaSX has compiled an extremely useful set of SaaS statistics, and we’ll highlight some of them below:
- A 20 percent growth rate is too slow for most SaaS businesses and even a 60 percent annual growth may not be enough to get it into unicorn territory.
- It’s four times cheaper to upsell or cross-sell to your current customers than to acquire new ones, and it’s nine times cheaper to retain a customer than acquire a new one.
- On average, 92 percent of a startup’s first-year costs will be spent on acquisition.
- The median annual churn rate for a SaaS business is 20 percent, while best-in-class businesses achieve five to seven percent.
- A SaaS business invests between 80 and 120 percent of their revenue on sales and marketing in their first five years of existence.
These SaaS statistics make one thing clear—sales, marketing, acquisition, and retention are the main areas where a subscription business will spend its money. That means any trends that require investment outside of these areas need to be carefully prioritized and balanced in your business strategy.
The Need for Greater SaaS Product Integration with Other Tools
Businesses are becoming more reliant on SaaS tools. They expect these tools to be able to communicate with each other, exchanging important data quickly, easily, and accurately. As SaaS use increases, you will need to offer integrations with an increasing range of other software. Whether that’s through native connections, or via a third-party service like Zapier or IFTTT, getting your Application Programming Interface (API) right should be a high priority.
The Growth of Industry-Specific SaaS Tools
Traditionally, SaaS products have focused on providing a specific function across a broad range of businesses—think communications, CRM, HR, marketing, analytics, forecasting, etc. There’s an increasing trend for SaaS tools to focus on a type of industry and provide a broad range of features designed to meet many of the overall needs of a business in that sector. For example, you may have SaaS tools based on healthcare management, hospitality, or supply chain management. This is carving out a different niche for SaaS businesses as other marketplaces become more saturated.
The Mainstreaming of Artificial Intelligence into SaaS Products
AI has gone mainstream. Many cloud platforms like Amazon Cloud Services, Microsoft Azure, and Google Cloud now offer AI platforms designed to integrate directly into SaaS tools to provide greater functionality to users. SaaS AI can automatically mine datasets, using complex algorithms to automate processes or to make recommendations and predictions. Top-of-mind for many SaaS businesses is how to personalize the services offered to users. AI takes away some of this burden, providing bespoke choices to users based on their preferences and history with your tools.
AI can drive up efficiency within your SaaS business. It can work alongside your employees, automating low-value tasks and flagging anything unusual so a team member can take a look and deal with anything out of the ordinary.
The Introduction of Machine Learning as a Service
Machine learning is closely related to AI, with Machine Learning as a Service (MLaaS) becoming an increasingly important add-on from cloud providers. The introduction of these services means that SaaS startups don’t need to invest huge amounts of their own time, energy, resources, and money into developing machine learning from scratch. MLaaS provides a wide range of customizable tools that allow you to develop ML algorithms, analyze data, find commonalities, provide data visualization, and offer natural language processing, speech recognition, and more.
The Evolution of SaaS Pricing and Payment Models
Traditionally, SaaS tools have offered a variety of subscription models based on functionality, number of users, and subscription lengths. Although that may make sense for some users, there’s an increasing trend towards other payment models. Some SaaS companies are experimenting with “Pay-Per-Use” pricing as part of a more transactional business model. This type of pricing makes more sense for mature SaaS businesses and can be offered as a replacement for, or add on to, an existing payment model.
The Need for Dedicated Customer Success Teams
The success of SaaS relies on two critical principles—acquiring new customers to grow, and retaining existing customers to remain stable. As we saw in the statistics above, it’s much less expensive to retain and sell to an existing customer than it is to acquire a new one. One of the best ways to do this is by putting a Customer Success team in place. This is a dedicated group, typically within your sales or retention department, that specifically focuses on adding value for clients.
They achieve this through a variety of means, including:
- Building trust with customers through regular contact and good relationship management.
- Interviewing customers to find out what their specific needs are.
- Providing bespoke advice to show how SaaS tools functionality can help them meet their requirements.
- Sharing helpful guides, tutorials, and resources to help them get more out of your products.
- Carrying out good retention management, especially around vulnerable times, as subscription periods are due to expire.
- Integrating with other teams to share updates on product development and new features.
A customer success team will quickly become a vital part of your relationship management expertise.
Of course, these aren’t the only trends that will influence the SaaS industry in 2020, but we believe focusing on some or all of these areas will significantly enhance customer engagement, boost your SaaS feature set, and help to ensure the success of your business. Be sure to prioritize your future investments, build them into your SaaS business strategy, and balance them against your sales, marketing, and acquisition needs.