New Research From Paddle Shows That Operational Efficiency is Key to SaaS Surviving Market Downturn

Half of Software-as-a-Service (SaaS) companies have changed their go-to-market strategies in recent months while 46% have reforecasted, rebudgeted or reviewed when they will next raise capital according to a new study released today by Paddle, the provider of a complete payments infrastructure for SaaS companies.

Paddle’s Survive or Thrive report interviewed 100 SaaS founders and C-suite executives to chart the impact of the global downturn on SaaS companies, revealing that, while the impending recession has shifted the priorities of the market, industry confidence remains and there are still opportunities to sustainably grow SaaS businesses.

 

 

The SaaS market has been impacted by an economic maelstrom of rising inflation, heightened interest rates and global financial uncertainty. Limited access to capital – with quarter-on-quarter investment into SaaS falling to 42% in Q3 – as well as reduced business and consumer purchasing power has led to a rapid shift in business priorities across the sector.

In response to the crisis, Paddle’s report reveals that SaaS businesses have remained resilient and nimble, and are now prioritising operational efficiency to save cash and weather the economic storm. The survey revealed that:

• 46% of SaaS companies have reforecasted, rebudgeted or reviewed how and when they will next raise capital with many SaaS firms focusing on extending their cash runway to reduce the need to raise new funds. This includes reducing operational costs (23% have reviewed app usage, for instance) and reforecasting more regularly.
• 50% of SaaS companies have changed their go-to-market strategy, focusing more on customer retention over acquisition and experimenting with new pricing strategies such as upselling and add-ons.
• 35% of SaaS companies have made changes to their hiring plans in 2022 to reduce operational expenditure (OPEX). Strategies include increasing employee efficiency through analysing team performance, slimming down salaries and freezing hiring.
• One in three SaaS companies say that efficiency is their top priority for bolstering growth in 2023, in a clear shift from the growth at all costs mindset. This included cutting costs, churn/retention and cash burn/low customer acquisition cost. By contrast, 1 in 4 leaders are focusing on customers, and 1 in 5 on product.

Despite a cloudy economic outlook, confidence for the year ahead also remains high. On average, respondents estimated their confidence level at 7/10, with only 8% of leaders reporting that they were not optimistic (less than 5/10) for the near future.

 

Christian Owens, CEO and co-founder of Paddle, commented: “While no software company will be immune to the challenges of this economic slowdown, our report shows that SaaS leaders are still optimistic for the future. SaaS companies are braced for tough times but they are taking steps to give themselves the best chance of emerging stronger from this period by focusing more on customer retention and prioritising efficiency. We’d expect this to be a dominant trend within SaaS for much of 2023..”

“After a prolonged period of accelerated growth for SaaS, finance and commercial leaders have now realised they need to switch gears and prioritise operational efficiency over the growth at all costs mindset that has been common in recent years,” said Daniëlle Keeven, VP of Finance at Paddle. “There is a balance to strike between cost-reduction to extend cash runway and investing in revenue retention and expansion strategies but those that get it right will be best placed to take advantage in 2023 and beyond.”