The Journey to Profitable SaaS
A sobering fact: according to a recent survey, TSIA found that 42% of SaaS companies are operating unprofitably. In the last year, this has become a significant problem plaguing the industry, resulting in unsustainable business models.
In 2022, valuations took a hit, investment dollars became scarce, and SaaS companies started laying off employees in record numbers. In fact, August 2022 was the first time profitability became the primary factor in determining the valuation of a public SaaS company. Unfortunately, most management teams were ill-equipped to navigate this pivot.
How can SaaS companies—and tech companies pivoting to a SaaS model—pave a path forward to profitable growth??
This is the question that we are answering in our first-ever Research Journey , which utilizes TSIA’s research engine to solve relevant business challenges for the industry.?
With our experienced industry experts, industry polls and surveys, and host of data, we'll be testing hypotheses and drawing conclusions. Today, we invite you to come along on this journey and explore some highlights.
The State of SaaS Today
“I see a lot of founders that are acting like, oh, we're going to do another round in six months. And I'm like, what if you don't? No, we will. What if you don't? Because the change was so quick, some people didn't swap their mindset.” – Phil Alves , CEO, DevSquad
On our recent episode of TECHtonic , Thomas Lah interviewed Phil Alves, CEO of DevSquad, about the state of the SaaS industry, and how SaaS leaders are reacting to the recent shift. They discussed questions like:
Check out the full podcast and get a glimpse into how both a modern SaaS CEO and an experienced tech veteran view today’s SaaS landscape. They both agree: Unprofitability is not sustainable, and the economic circumstances affecting tech companies will not go away anytime in the near future.
How SaaS Companies Become More Profitable
"The maniacal focus on improving profitability is not going away for SaaS companies. Telling the story of growing revenues without addressing overall margins and profitability will not cut it in the current economic climate." – Thomas Lah
In our webinar, The Year of Profitable SaaS , Thomas Lah, TSIA’s Executive VP and Head of Research, discussed steps companies can take to improve the financial position of SaaS business models.
One step towards profitability involves migrating commercial responsibilities—and renewals are the easiest place to start moving the needle.
According to TSIA research, it’s much more expensive to have Sales own a renewal than a renewal specialist or customer success manager. This is a cost that can efficiently be reduced.
For example, the cost to renew a contract drops six points when handled by a customer success manager (CSM) versus a sales representative.
The percentage of renewal contract value paid as incentives is less than half of what is paid to account executives when they handle renewals. That is halved again when customer success handles renewals.
Research also confirms that there is no material change to contract renewal rates when any of these groups bear responsibility for the renewal.?
It’s time to diversify—have customer success managers or renewal specialists own renewals (and expansions) and save the most complex, strategic plays for Sales. When Sales no longer unnecessarily executes renewals, not only is money saved, but Sales has more time to do the work that only Sales can do: landing complex, high-value deals.
Monetized Services in SaaS
According to TSIA research, 50% of companies are monetizing #CustomerSuccess. Greater than 80% are monetizing technical support.
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While there are considerable benefits to monetization, we’ve found that it’s rare for a SaaS provider to aspire to have 30% of revenue coming from these monetized customer success or support offers.
Our working hypothesis is that, in terms of monetized services, profitable SaaS business models will be operating within the parameters outlined in this paper :
If you’re hesitating on monetizing services, don't!?
Watch the full webinar to gain more insights on how SaaS companies can boost profitability. The data shows that monetizing services and migrating commercial responsibilities are two key steps to take as soon as possible.
The 10-10-10 Rule
In our latest Research Journey paper , Thomas Lah reviews:
Referencing the research we’ve completed thus far, Lah identifies three key metrics that leaders should be working to improve—the 10-10-10 rule:
Read the full report for more details on this rule, helpful frameworks, and industry data. It’s clear that SaaS companies can do more to monetize services, and CFOs must keep an eye on involved metrics as well as company RAC.
We’re Not Done Yet
Though we’ve completed in-depth research on both the state of SaaS today and what companies can do about it, we’re not at the end of the journey just yet.?
Join us for the last leg of this Research Journey, which includes:
Don’t miss a beat—subscribe to join us on the journey today.
If you’re interested in our research, TSIA World ENVISION is the place for you—this is where our Research Journey will come to life in an interactive forum. Learn from TSIA experts, your peers, and other companies such as Microsoft, Salesforce, and more.
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Join us at the industry’s business transformation conference, TSIA World ENVISION , this October 16-18.
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