Is the Market Stabilizing After a Turbulent 2022?
After the growth surge in late 2021/early 2022 (and the difficulties of the rest of 2022 that quickly put a halt to the boom), many industry experts believe that a “new normal” may be emerging for the industry. The Federal Reserve rate hikes of last year, the Silicon Valley Bank collapse, and other economic factors have all contributed to significantly reduced combined annual growth rate (CAGR), but as of late Q2-23 and Q3-23, SaaS market growth appears to be stabilizing.
According to July data from the ProfitWell B2B SaaS Index:
- SaaS revenue growth has remained close to 11%
- Transaction volume (new MRR and upgrades) decreased
- Churn remained historically high (10% higher than 2022)
While experts are still unsure whether this steady growth constitutes a new normal, it was noted that the SaaS industry’s 10-11% growth is much higher than the overall U.S. economy’s 2% GDP growth — indicating that the B2B SaaS market is normalizing and may even be considered healthy, though it’s simply different from what we all saw in the past.
What This Means for Your SaaS Clients
While SaaS market growth is stabilizing, it’s clear that the difficulty with new sales combined with persistent churn means clients will be working harder to achieve growth goals. SaaS tools are still in demand, meaning that competition will continue to be fierce. Whether you’re assisting your SaaS clients with financial, operational, or strategic functions, or you’re working with them in a marketing and sales capacity, below are some recommendations for how they can turn the current environment to their advantage.
Focus on Stability — Many investors and advisors have been emphasizing revenue growth for their clients, but operational stability and having a clear strategic direction will be just as important. Clients should not get too broad with their investments into the business — e.g. they should have a defined reason for how they’re using their resources and goals (marketing and sales, research, platform development, etc.). Efforts to make the business more stable overall will position it for greater resiliency in the event the market shifts again.
Seek to Reduce Churn — With more and more customers seeking the best tools for their working environments and goals, clients should be instilling platform benefits and competitive advantages into their clients to achieve greater SaaS market growth. Customer success efforts, onboarding optimization, ongoing training, customer support, and related efforts to keep customers satisfied and paying will all go a long way toward reducing churn.
Continue Focusing on Growth — One of the best and fastest ways to grow revenue is through new customers. Upselling and account expansion are worthwhile and should also be pursued, but winning new customers expands the top line faster. As mentioned above, the key is to protect it — then grow it. Additionally, new customers should not be the only solution for reducing churn. Everything mentioned thus far goes hand in hand.
How Can Venture Debt Financing Help?
Venture debt financing is a great way for SaaS businesses to make meaningful progress on all of the above recommendations. While it’s most beneficially used for sales and marketing acceleration, clients can use the capital however they see fit. If investment in platform development, market research, or a related area will help the business achieve its goals sooner, then the capital should be used that way. If the business is in a position to scale rapidly, the capital might be better used for sales and marketing efforts.
At River SaaS Capital, our venture debt financing is flexible and can be structured according to your clients’ needs and goals. We offer a variety of loan structures — from interest-only loans that preserve revenue and allow the business to reinvest profits to step-up structures that tie repayment to a set schedule that we and the client agree upon upfront. Tranches are also available, meaning that your clients can take portions of their total loan amount to avoid paying more interest over the life of the loan.
But best of all is that River SaaS Capital doesn’t take an ownership position in any venture debt client’s business. We also don’t take warrants. We believe that your clients should be in complete control of their goals and the direction they take to achieve them. Along the way, our investment team will provide strategic guidance and support to empower and advise them in the best way possible. It’s the business, and they know it better than anyone else — our funding solutions ensure they’re able to grow it on their terms.
Connect with us today to learn more about our funding and how we can work together, or fill out the form below.