There's a recession looming...
And as a result there’s a lot of generic advice out there, especially within the past month.
So, I ran an analysis on 23.2k subscription and SaaS companies, and here’s what I found.
Things will mostly be fine...
But there are two data points are pretty scary (especially in consumer and soon B2B).
Let's jump in.
Let's talk about consumer markets first (you'll see why later).
The graph below is a breakdown of growth in subscription ecommerce companies, which tend to be more market sensitive.
You can see that the market accelerated, an equivalent to 10 years, through COVID and with the help of economic stimulus payments or "stimmies."
There's a problem though...
As COVID subsides, consumable products are slowing down. And those nice-to-have products are going away without any more stimmies.
What does this mean?
Well, as a consumer debt bubble looms with people trying to maintain a "stimmy" lifestyle, it means that at best, growth stays flat.
"The pancaking" is happening.
And at worst...
Contraction will happen because churn is up:
While new sales are staying consistent, we're not replacing lost customers fast enough.
B2B SaaS is where things get interesting....
Look at this insane market growth graph. There's a reason B2B SaaS gets higher multiples.
It's a march of growth.
And COVID was basically a three-week stall similar to a Christmas stall.
However, B2B SaaS has a lurking problem similar to that of subscription ecommerce.
While growth is happening and new sales are staying consistent, churn and downgrades are up.
Churn is accelerating (the lines on the graph are going lower) and is starting to flood the market.
The result?
Month-over-month growth rates are slowing — and it's going to get worse in B2B. Recessions hit the consumer world first and then B2B.
Here's a breakdown of B2B and B2C SaaS month-over-month growth rates (inside ProfitWell):
You need to focus on two things:
Keep in mind that people are giving advice to cut and shore up runway not because the problem exists at this moment, but because a problem WILL exist.
The data provided here is an early warning system.
Efficient spend is key to coming out the other side.
You must prepare:
When it comes to lifetime value, this is an opportunity to shore up the fundamentals.
Subscription growth is pretty basic — acquire a customer that's optimally monetized and sticks around for a long time.
You're likely focusing on the word, "acquire," but the rest of that sentence is pretty important too.
Let's elaborate...
Segmentation and expansion revenue are crucial, so make sure you have a solid strategy in place:
I mentioned earlier that most will likely focus on acquisition. Ultimately though, it comes down to how many of your customers you can hang on to.
When it comes to big bets, I learned an intense amount from what HubSpot and Salesforce did during COVID. They appeared to double down on a few things:
Both invested more in free products and gave away more value for free.
Both implemented numerous design shifts to improve customer experience.
These all had one main thought:
Whoever ends this with the most users, will win.
To me, that should be your mantra.
Recessions end. They're a pain, but it shows us who's going to execute and who's not.
There's a reason people say "great companies are made in a recession."
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This is a ProfitWell Recur production—the first media network dedicated entirely to the SaaS and subscription space.