Unpleasant words like recession have been floating around a lot over the last few months. Financial forecasting for 2023 doesn’t look so hot. Businesses around the world are buttoning down, developing strategies for how to ride out the coming storm.
And how do you make sure your business is developing a strategy that’ll propel it toward long-term success? By basing that strategy on data.
Peter Sondergaard, former EVP of Research & Advisory at Gartner, says, “Information is the oil of the 21st century, and analytics is the combustion engine.” In other words, solid numbers, and the knowledge of how to use them will drive your business forward.
As for where to get that data?
Your billing software can provide your business with a clean, steady stream of numbers that help you forecast growth, better understand your business’s income, and create a SaaS business plan for the future.
Up-to-the-minute data accuracy
You know that game, telephone? You start with an innocuous statement. “Greg likes jellybeans.” That phrase gets whispered into one person’s ear. They whisper what they think they heard into the next person’s ear, and by the time you reach the last person in line, the statement has changed quite a bit. “Greg killed the queen.”
Business has its own version of telephone, in the form of data siloes. Each department getting information from different software creates an internal disjointedness that causes uncertainty and inaccuracies.
Your team is just that—a team. You want them to be on the same page, working together to achieve the same goals. So, you should be doing everything you can to make life easier for each other. Telephone isn’t a sustainable business model when it comes to data management. Without a single source of truth (SSOT), you run the risk of data errors.
Everyone’s touching the numbers. Mistakes get made. Bad information is passed around.
Spreadsheet-driven data management makes it too easy for mistakes to happen. And they will happen—at a rate of about six mistakes per hour.
An SSOT allows everyone at your SaaS company to access the information they need without having the ability to accidentally change it.
Your subscription management platform can bridge the data flow across all areas of your tech stack—be it your CRM, ERP, accounting software, or even your own software product. Not only does this keep the information safe, but it also makes it easier to access and use.
For example, when it’s time to re-evaluate your ideal customer profile (ICP) so your marketing team can create its annual marketing plan, they can access your billing data for accurate info on the types of customers that actually use your product.
Historical data is a powerful thing
There’s a quote you might have heard, often attributed to Mark Twain. “History doesn’t repeat itself, but it rhymes.”
The sad thing is how few people know he was talking about SaaS customer behavior at the time. Look it up.
As you look to make your 2023 SaaS business plan, it’s a good idea to review what your best customers have done in the past. This is especially valuable in the context of crafting your sales and marketing plan and forecasting revenue.
Let’s say you comb through a few dozen account histories, focusing specifically on customers that make up your target audience. At first, the information will probably feel random, and quite like something you’d rather not be dealing with.
Ah, but then a pattern emerges! Maybe you see that churn happens most frequently in month three. That’s when customers have given your product a fair try but haven’t quite experienced the win they were looking for.
But when they stay on past that, customer account upgrades often happen in month five. That’s when customers have experienced their triumph and are ready to see if they can have better results by expanding their use of your product.
Human behavior does follow recognizable patterns. It doesn’t mean all your customers will robotically do the same thing. It does mean that, at a large enough scale, you’ll be able to notice a considerable number of people reacting the same way to certain stimuli.
Recognizing these patterns is an important element of business planning. Not only can it help you tweak your SaaS business model to identify a better customer acquisition and retention strategy, but it can also help you to better cater to your existing customers.
This is particularly valuable when it comes to preparing your SaaS business model for a recession. Remember that:
- the probability of selling to an existing customer hovers between 60-70%, while
- selling to a new person has a success rate closer to 5-20%.
Granted, the potential for an economic downturn can significantly change those numbers. Regardless, selling to existing clients will remain an easier and more affordable strategy for revenue generation in 2023.
Data provides your SaaS business with information to perfect its lead generation efforts.
Customers with qualities X, Y, and Z dependably opt for account upgrades or upsells at the five-month mark. Sales might use this information to identify customers that fit that bill and see if they can offer upgrades. Meanwhile, your marketing division may work to tailor messages that will help acquire customers more likely to opt-in for upsells.
Making the numbers work for you
In addition to making your data more manageable, your subscription management platform should also be able to produce valuable data in its own right. Numbers that can be used to help you plan for the future and feel more confident about your SaaS business’s status.
Calendar reporting lays out when you have payments coming your way. You get a monthly calendar that shows you:
- the future dates you’ll be sending invoices out,
- future dates when payments are due,
- the dates in the past that you received payments, and
- how much money each invoice and payment was worth.
Detailed revenue forecasting is always handy, but even more so during financial downtimes when the margins are tighter and every dollar counts.
Even during a recession, you’ll want to focus on growth. The overall growth median in the software as a service industry is 40%. That number could dip in the face of a recession, but regardless, expansion is an important part of remaining relevant in this highly competitive industry.
Monthly recurring revenue (MRR) reporting helps you calculate your business’s growth rate so you can set realistic goals, and course-correct quickly as the need presents itself.
Modify your expectations
Between 10-30% of bills are paid late or not at all. In the subscription industry, it’s usually better to adopt a “better late than never,” mindset, and let customers back in once they pay their outstanding balance.
However, sometimes involuntary churn due to outstanding payments is inevitable. An accounts receivable (AR) aging report allows you to take a close look at customers with a habit of missing payments. Joe Schmoe has been late on four of his last six invoices? Maybe you shouldn’t count on his revenue going forward.
Certainty in uncertain times
Data isn’t magic. It’s math—pattern recognition. A careful look into the past provides a good idea of what will happen in the future. During a recession, it adds predictability into uncertain times. To grow and compete even when the cards are down, you need to be confident in your decision-making.
Through data, SaaS companies survive and thrive in any market condition.