Let’s be frank, the economy has seen better days.
And as we plow headfirst into 2023 with a global recession on our hands, it’s essential to have a game plan. Software-as-a-service businesses, many of which have never experienced a recession, must learn to operate more efficiently if they want to thrive, or even survive.
By approaching the new year strategically—and making a few business resolutions—software companies can continue to grow even in the face of economic uncertainty.
Learning from past recessions
During the dot-com crash of the early 2000s and the Great Recession of 2008/2009, knee-jerk reactions were to batten down the hatches. SaaS businesses left, right, and center were cutting their marketing spend and employee numbers in an attempt to drastically reduce burn rate.
But looking at the past, we can see that behavior is counterproductive. Interestingly, data shows that SaaS businesses actually grew during this time, albeit slower than usual. That’s not to say they were operating profitably, but with the right access to liquidity, they were able to emerge from the recession in a favorable position.
Take SaaS startup Adobe Sign/EchoSign, for example. It managed to double sales even during the very darkest days of 2009, with an impressive growth rate of almost 200% that continued well into the next decade.
And it wasn’t just the odd SaaS startup that experienced growth during the recession. SaaS industry heavyweights like Salesforce and competitors like Blackbaud grew, too. Even in a recession, digital transformation does not let up and SaaS businesses continue to meet that demand.
“This is a time when every company, every industry, every government is investing in digital transformation.”
Salesforce co-CEO, Marc Benioff
To maximize your chances of business growth during these turbulent times, here are some business tactics to employ.
1. Focus on customer success and health of current customers
If your leads are tightening their belts, new sales may slow down. While that may seem alarming at first, it’s actually a fantastic opportunity to shift attention to your existing customer base.
By shining a light on current customers, you can find new ways to increase their satisfaction. Happy customers make loyal customers, which spells good news for your retention rate (a vital growth metric for SaaS companies).
But it’s not just about trying to prevent churn.
You may even be able to work on gaining some expansion MRR!
The beauty is that paying customers are already familiar with your SaaS product. They’ve experienced its value, and invested time and money integrating it into their tech stack. This makes your existing customer base up to 14x as likely to convert compared to new leads.
Here are some focus areas to help you leverage existing customers and achieve recession-resistant revenue growth.
Customer retention
When new signups are decreasing, it’s more important than ever to keep the ones you already have. Some of the best ways to retain customers include going full power when it comes to the customer experience (CX)—that is, delight, don’t satisfy—and consistently delivering your value proposition.
How about converting monthly subs to annual? They have up to 800% higher lifetime value (LTV).
Land and expand
This goes further than just keeping your customers on board. It’s about proactively nurturing your relationship with the customer throughout their journey.
Treat customers right and they’ll hang around for longer. For B2B clients, this often means their business experiences growth alongside yours. In turn, their usage of your SaaS product increases.
Having strong client relationships comes with other benefits, too. It allows your customer success team to identify and present new opportunities—like rolling out your software to more teams or departments, for example. In many cases, happy clients may even take that initiative themselves.
Alternatively, you could find gaps in service and promote add-on features or upgrades. Or, negotiate longer-term contract periods for more predictable monthly recurring revenue (MRR), less churn, and greater LTV, all of which help drive growth.
Leverage customer feedback
Incentivized surveys are a great way to gather product feedback. Not only does this validate product-market fit, but you can use that insight to continuously improve your user experience. As I mentioned earlier, it’s about delivering delight, not just satisfaction!
This should lead to more word-of-mouth referrals. People are 90% more likely to trust and buy from a business recommended by a friend, and new SaaS signups are gold dust in the midst of a recession.
2. Aim to acquire the best-fit new customers
Signing up new customers in 2023 may not be as easy as it was in the past. And if you’re spending considerable resources to acquire customers, you’ll want to make sure they’re the right ones—i.e., best-fit customers.
To do that, you’ll need to create a detailed ideal customer profile (ICP). It will help you pinpoint the best-fit customers that will get the most value out of your product. They’re the ones that are more likely to be an easy sale and be the best revenue-generators once they’re on your roster.
On the other hand, bad-fit customers don’t see the value in your product or their needs differ from what you’re providing. Too many of those and you’ll end up with an unsustainably high churn rate, stunting your organic growth and impacting your annual recurring revenue.
Nail product-market fit and you’re well on the way to recession-proof growth.
Get better leads
More is not always better. And when it comes to leads, you should prioritize quality over quantity. Research shows that growth originates from fewer but higher-quality leads.
The right leads are easier for your sales team to close. Designing your sales funnel for best-fit customers will save your sales team time, boost employee confidence, and foster a more productive and positive work environment.
Optimize marketing strategies
While it may be tempting to cut down on paid marketing during an economic downturn, this isn’t usually the best plan. Instead, optimize your marketing efforts to reduce customer acquisition costs (CAC) and maintain an advantage over competitors.
Terms like “marketing spend” mean it’s seen as a cost, not a revenue driver, but when it’s done right the opposite couldn’t be more true. Marketing is not something you can afford to scrimp on unless perhaps your business is entering survival mode.
For your marketing efforts to pay off, you’ve got to use the right marketing channels to reach your target audience. After all, your product isn’t meant for everyone everywhere. So why advertise it to them? Have a solid ICP in place to know where your target audience/best-fit customers hang out and what stimuli they respond to. Then execute your campaigns with laser precision.
You could save cash by turning to cheaper marketing methods, like email or building social media presence with viral content. Plus, many search engine optimization (SEO) best practices are free, and pleasing search engines like Google will bring more organic traffic.
You could even build a free tool, like a file format converter, as part of your SEO strategy, as Veed did. Its free tools contribute over 73% of its overall organic traffic.
“Most SEOs focus on writing content as the core of their SEO strategy. This is generally okay and can drive impressive results. That said, an SEO strategy that most people rarely talk about is building free tools,” explains AbdulGaniy Shehu, founder of YCM.
However, bear in mind that your competitors will likely also be swapping paid marketing for cheaper options. So it’s a great opportunity to do the opposite! You’ll be able to reach your target market with smaller paid ad spend and less visible competition. So, it should be easier to grow brand awareness with a lower customer acquisition cost. You can capitalize on competitor churn and increase your market share and mindshare.
Focus on CRO
Conversion rate optimization (CRO) lets you maximize ROI without additional marketing spend. To do this successfully, you should dissect every stage of the sales process. Test your landing pages, use heat mapping technology, and A/B split test everything from font size and color to CTAs and imagery.
If you can attract customers who are a perfect fit and optimize CRO you have the perfect storm for growth—even during a recession.
3. Automate repetitive and error-prone tasks
If optimization is the key to recession-era growth, then old-school manual processes are an obvious hindrance. It doesn’t make sense to waste time juggling spreadsheets or devote valuable manpower to mundane tasks that could easily be automated. Even less so for growth-focused SaaS businesses spearheading innovative solutions in the tech space.
Capitalize on time savings
Your SaaS business could spend up to 90% less time invoicing by automating recurring billing. Imagine if you could redirect tens or even hundreds of hours a month toward strategic, growth-promoting projects.
As well as the initial time savings, billing automation drastically reduces the potential for human errors that could have financial, image-damaging, and even legal consequences.
Plug revenue leakage
How can you expect to grow your software as a service business if a portion of the money you generate is leaking out again, unnoticed?
Failed payments, inaccurate billing data, and errors in volume or cost calculation are some main culprits of revenue leakage. Add pricing inflexibility to the mix and you’ll find yourself unnecessarily waving goodbye to a substantial amount of cash.
A subscription management system automates billing, invoicing, dunning management, and more. It can automate credit card retries and deliver timely reminders to customers about expired cards or failed transactions, helping you to scrape back your hard-earned revenue.
Growth tips for SaaS businesses in a recession
The reality is that growth during a recession is achievable, but it’s likely to be more expensive.
The main thing you need to consider is your business efficiency, and we can break this down into a few main areas.
- Be more choosy with potential customers—stop trying to get more customers and focus on getting best-fit customers instead. Acquiring customers willy-nilly won’t help your long-term strategy if they churn out quickly.
- Have a strong handle on your marketing funnel and ensure every element is built around your target audience and specifically your ICP. Use content marketing to deliver even more value when times are tight for businesses and consumers.
- Automate repetitive tasks and use subscription management software to reduce operational friction and enable growth and scalability.
All in all, attaining higher growth metrics during a recession is more than doable. The SaaS business model is resilient enough to withstand economic downturns. Bear these resolutions in mind to stay on track for hitting your business goals into 2023 and beyond.
And on that note, I’ll leave you with this Bo Bennett quote.
“As sure as the spring will follow the winter, prosperity and economic growth will follow recession.”
