How will SaaS companies react in 2021, have they been hit hard by the COVID-19 crisis, and what are the predictions?
We are entering a new year full of hope after having gone through one of the worst times we have experienced in the last 100 years. The SaaS market, like all other markets, has not been immune to all that has happened and has had its problems.
The predictions that are made about technology are always abundant and it is in a situation like this that they grow the most. In one of our posts, we studied the impact of the pandemic on SaaS businesses.
One of the most important data that Epdata, released was the contraction of the world GDP by 3%.
Even so, the FMI has released some encouraging data for the world economy and is forecasting a positive rebound of 5.8% of GDP.
Internalisation of 2020
The adaptation of all sectors to digital brought with it various changes that we do not want to overlook. This has been a great awakening for our sector, but we have to know how to give it continuity over time and reinvent ourselves.
Shift towards teleworking
Development of technological tools
These are some of what we consider to be the most important changes that SaaS products have brought to society. They affect all areas of our lives, from our ways of working to our geographical location.
The whole world has discovered the potential of SaaS tools and how they can improve our lives, but we have to give them continuity over time. If we do not manage to be innovative, adaptable and evolve hand in hand with the customer, it will be difficult to continue to be successful.
SaaS targets for 2021
1. From recruitment to retention
Although the perception of customer retention can be misleading, this year is the year that really matters if you want to keep your customers longer in your business.
Last year, when the pandemic was all the rage, many businesses thought it was the right time to take no chances and keep their customers profitable to “muddle through”. This may be true to some extent, but it is also true that the SaaS business in this respect has gone against the tide and managed to increase its profits.
It is, therefore, a year in which we must stabilise our sector, trying not to be a passing software and become necessary in the lives of users.
2. Pricing models
The usual SaaS pricing model is based on subscriptions. But is this pricing model valid forever?
Of course, not, nothing lasts forever. So-called fatigue exists in all areas of life, and this is no exception. Customers will start to experience the fatigue of having to pay monthly subscriptions.
That is why it is necessary to give different inputs to customers to make them always perceive the real value of SaaS.
Our advice is not to be conformist and always consider that your customer should have different impacts from time to time.
3. Adapt the metrics
Once we have commented on the previous points, we must follow the same path for the business model. In other words, we have to take different metrics that make us effective in estimating our objectives.
Looking at the retention that we must promote in 2021, it is necessary to use the formula offered by the Net Revenue Retention (NRR)
Net Revenue Retention (NRR): (Starting MRR + expansion – downgrades – churn) / Starting MRR*100
We are talking about a metric that provides us with basic information for our business. In this operation, we should be above 100%, which will indicate that customer spend is growing faster than churn, providing operational leverage.
Finally, another formula that we believe should be in your financial analysis is the capital efficiency formula. In this formula, we should always be below one. A result of 1:1 would tell us that, for every cash used, we have added the same value to our ARR.
Capital efficiency = Cash used / ARR
For an understanding of some of the terms used in these formulas, here is an article we published specifically on the metrics used in SaaS.
If you have any further questions about SaaS development in 2021 and this interesting world, we are at your disposal.