Growth of SaaS market, Metrics every SaaS Company should track
SaaS is a cloud-based subscription model for delivering software on demand. SaaS applications have become the most widely used software delivery paradigm in the world. The SaaS in cloud computing is appealing because it meets both financial and productivity goals in an incredible way, that would be hard to achieve with standard on-premise technology.
Every industry is very competitive, with an ever-increasing range of software businesses starting off, expanding, maintaining market dominance year after year. The shift toward SaaS adoption was already underway before Covid-19 struck.
SaaS market growth
The SaaS market is presently increasing at an annual rate of 18%. By the end of 2021, cloud application services are expected to be worth $126 billion. Currently, 71% of businesses are implementing SaaS apps to improve IT service delivery efficiency and support business solution scalability.
By 2022, revenue from the SaaS industry is anticipated to reach $143.7 billion, and 28% of IT investment will be spent on the cloud. According to Gartner, the cloud services sector will expand three times faster than overall IT services.
The global SaaS market is expected to exceed $500 billion in revenue by 2025, rising 18-20% annually and reaching $1.3 trillion by 2030, according to a recent report by McKinsey & Co. and SaaSBoomi, a community of industry leaders.
According to PwC, India has surpassed established economies such as China, Hong Kong, the United Kingdom, and Canada in adding 28 new unicorns (mostly in the SaaS, Fintech, and Edtech sectors) in the first nine months of 2021. Investments in Indian SaaS development startups increased from around $960 million in the first three quarters of 2020 to nearly $3.2 billion in the same period this year. So far this year, 44 Indian startups have entered the Unicorn Club bringing the total number of unicorns in India to 83.
According to Nasscom, e-commerce, SaaS (Software as a Service), and fintech businesses account for more than 60% of all unicorns in the nation, as well as 60% of total cumulative investment.
If SaaS application vendors want to remain competitive, they must keep with ever-increasing consumer expectations. Customer engagement, market acceleration, and administrative services are just a few of the key services that SaaS startup businesses will employ.
Biggest SaaS companies
Microsoft Corporation, Amazon, IBM Corporation, Oracle Corporation, HP, SAP SE, and Salesforce are the major SaaS market players.
Countries with the largest SaaS development market
The report shows that in 2021, in the United States, there will be over 15,000 SaaS companies with 14billion customers ranking first among countries with the largest SaaS application market. With 2000 SaaS companies and 2billion clients globally, the United Kingdom is ranked second. Canada ranks third with 1000 companies, followed by Germany, France, and India.
Popular SaaS applications
The following are the most popular SaaS applications:
- Project Management - Kissflow HR Cloud, Zoho, Notion
- Software Testing tool - Selenium, Testim
- CRM - Hubspot, Salesforce
- Collaboration/communication - Zoom, Slack
- Budgeting/Reporting/Planning - Mint, Zeta
- Business Intelligence - Microsoft Power BI, SAS Viya
- Analytics - Google Analytics
- Finance/Accounting tool - FreshBooks, Xero
- Governance, Risk, and Compliance (GRC) platform- Riskonnect, Standard Fusion
- ERP/Manufacturing/Supply Chain - Oracle NetSuite, Microsoft Dynamics
SaaS metrics to monitor
The SaaS business model relies heavily on future income. In traditional business models, the money is collected at the point of purchase. In SaaS, if a customer is not satisfied, they will immediately leave for better SaaS products.
Since income is received over time rather than ahead, retention must be prioritized. As a result, many SaaS growth metrics are focused on customer acquisition and customer acquisition.
It is critical to identify the KPIs that drive conversions, retention, and revenue expansion in your organization early on. The most important SaaS metrics are simple and straightforward, allowing you to go forward and make the most effective in this competitive industry as soon as feasible.
- Recurring Revenue (MRR and ARR)
- Customer Acquisition Cost (CAC)
- Customer retention rate
- Churn Rate
- Customer Lifetime Value (CLV / CLTV)
Recurring Revenue (MRR and ARR)
Annual recurring revenue (ARR) and monthly recurring revenue (MRR) are two of the key metrics that every SaaS development company or a SaaS startup must accurately monitor and manage. MRR is the regular amount of money that your firm foresee to receive on a monthly basis. ARR is the amount of money that a client has promised to spend with your subscription service over the course of a year.
Choosing between ARR and MRR is determined by the sort of contract that works best for your organization and product. Some SaaS products may perform better under year-long contracts, while other SaaS software may perform better under month-to-month contracts. ARR is more common with the SaaS industry that has a modest transaction volume but a high transaction value.
Increasing revenue and minimizing churn helps to improve your ARR and MRR. Monitoring MRR and ARR trends will provide you with insights into the efficiency of your SaaS company's health, growth, success, and momentum.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the amount of money spent to gain a customer. The CAC of SaaS development companies should be kept as low as feasible.
The client acquisition cost is an excellent measure to use as a guideline when calculating ROI. Every cost you incur as a growing SaaS industry must be analyzed because there are several channels you may spend it to create revenue. Spending money on low-return activities is one of the pitfalls that SaaS development companies should avoid.
Because email is becoming more competitive and crowded, the newest generation of cold outreach is being forced to use other channels like as LinkedIn, Twitter, and other social media, developing consumer profiles, attempting to automate as much of the sales process as possible, separating lead generation and account management to increase the productivity, as well as A/B testing to improve sales-related operations.
The sooner CAC is recovered, the more money can be re-invested in acquiring new clients. CAC has an impact on the profitability and cash flow of SaaS development companies, and because most are subscription-based, revenues are produced over time.
Customer retention rate
The percentage of customers that continue to use and re-subscribe to your service over time is referred to as the customer retention rate. Customer retention is what keeps your SaaS development company steady and profitable over time.
To improve custom retention rate provide a pleasant onboarding experience for your clients, excellent customer service, Interact with your customers one-on-one via social media or email, resolve their issues and set reasonable expectations. In fact, a 5% improvement in client retention may raise your bottom line by 25 to 95%. The greatest approach to increase your retention rate is to provide a high-quality product and customer service. The lower your churn rate, the greater your retention rate.
Customer churn rate is the rate at which a SaaS development company loses customers owing to cancellations (proactive churn) or fails to renew, and it is often monitored monthly. This has a direct impact on financial metrics including recurring revenue, lifetime value, and client acquisition cost.
Reduce churn by understanding who your ideal customers are, how to contact them, what they require, and how much they are prepared to spend for your SaaS product. Creating a customer persona based on user attributes such as demographics, industry, income, and employment is the best approach to view the whole picture. Assist consumers in engaging with your SaaS product by regular contact, active listening, gathering feedback, and working on improving the user experience.
Customer Lifetime Value (CLV or CLTV)
It is the money you would make before they are churned. The smaller your customer churn rate and the greater your customer retention rate, the better for your SaaS company. They help to increase the lifetime value of your customers.
Client acquisition costs must always be less than the customer lifetime value. Aim to recoup your CAC in less than a year; otherwise, your SaaS company will require too much money to develop.
Here are some of the broad techniques to improve your CLTV: Upselling (selling more features or product extensions to current clients) and cross-selling (selling related products along with core products), adding features to your product that makes user dependent on it, investing in multi-channel support in early stages, have a well-trained and responsive 24/7 support team in place, reassess your value proposition frequently to ensure that your SaaS product meets the changing demands of your customers.
Following these SaaS growth metrics, knowing how they affect your SaaS company, and leveraging them for your bottom line could be a better way to achieve consistent and planned growth.
Check out these resources to know more about SaaS metrics:
Grow your SaaS Business with Undaku
As the above SaaS growth statistics show, there is a significant demand in the SaaS market and so many SaaS products are being created each year. Over the next several years, the SaaS market will continue to change, with no indications of slowing down soon. The majority of SaaS business owners should be able to move from greater heights by understanding what lies ahead and how to overcome or profit from these trends.
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